After the frank admission by President Bill Clinton and the Japanese Prime Minister, Morihiro Hosokawa, that even a summit meeting had failed to break a seven- month deadlock, both sides were ostensibly preaching caution, weighing their next moves. But after so much bluster, Washington is virtually compelled to act if it is to retain negotiating credibility.
A first opportunity to strike could come tomorrow, when the Clinton administration is due to pronounce on whether Japan has broken a 1989 agreement with Motorola on access to its cellular phone market. But any such punishment would produce reprisals, either in the form of a complaint by Tokyo to Gatt (the world trade agreement), or as 'tit-for-tat' sanctions against US suppliers.
A day after his unproductive session at the White House, Mr Hosokawa was unrepentant and uncompromising. Japan hoped the US would hold back from retaliation, but he bluntly refused to submit to Washington's pressure for numerical targets that would measure progress - in Tokyo's eyes a euphemism for managed trade. 'We will not change our position,' he said before returning home.
According to US officials, a basic decision to impose sanctions has already been taken. The most extreme measure would be higher tariffs, driving up the cost of Japanese goods for American consumers. Another tactic would be to drive the dollar lower against the yen, which would have the same result. Alternatively, market share quotas could be allotted for imports from Japan.
These officials insist that Japan has gone back on its undertakings under the so-called 'framework' agreement last July, whereby the two countries pledged to establish 'objective criteria' to chart the progress of US goods in Japanese markets. After seven months, they say, further negotiations are pointless. Whether the US government can keep control of events hereafter is another matter.
One problem is that sanctions could penalise US businesses with close ties to Japan. More likely, and perilous, is the prospect of Congress, led by a noted Japan-basher, Richard Gephardt, the House majority leader, giving free rein to its protectionist instincts. In doing so, the US, always identified with 'free trade', would surrender the moral high ground in the trade debate.
The deadlock may symbolise a subtle change in the relationship between the world's two largest economic powers. In defence and security, as over North Korea, the US is still senior partner. But a younger, reformist Japanese Prime Minister is for the first time prepared to disagree publicly on economic policy. His predecessors' meaningless promises of 'best efforts' to reduce the trade imbalance are no more. As Mr Clinton himself put it, 'We decided no agreement was better than an empty agreement.'
Japan reacted defiantly to the failure of the talks. One newspaper, the influential Yomiuri, triumphally titled its main editorial yesterday The Japan that said no and went on to praise Mr Hosokawa for not bowing to US demands.
Japan registered a dollars 141bn ( pounds 95bn) overall trade surplus in 1993, of which more than dollars 50bn was with the US. 'Japan and the US have entered a stage to create a new relationship where one side is no longer subordinate to the other,' said Hiroshi Kumagai, of the powerful Ministry of International Trade and Industry (Miti). A senior Miti bureaucrat, Sozaburo Okamatsu, was Japan's lead negotiator in the failed talks.
'Hosokawa and Clinton frankly said 'no' to each other on the economic issues, and that is better than the practice in previous summit talks, when success was an imperative goal,' said the daily Asahi.Reuse content