'Maturing' ties with U.S. welcomed by Japanese

February 16, 1994|By Thomas Easton | Thomas Easton,Tokyo Bureau of The Sun

TOKYO -- When trade talks between the United States and Japan collapsed over the weekend, the curious initial reaction of many Japanese was not fear of a currency catastrophe or a trade war, or any of the other expected responses.

Instead, there was a celebration of Prime Minister Morihiro Hosokawa's embrace of a new, more "grown-up" era between the two countries which, like adults, could agree to disagree.

Surprising as it may seem, the numerous trade agreements in the past not only were considered failures in the United States, because they did not diminish Japan's trade surplus, but they were considered failures here as well, for other reasons.

Results aside, they were perceived as unfair intrusions on sovereignty -- embarrassing concessions forced by the United States on the Japanese, once characterized as a nation of children by Gen. Douglas MacArthur, who ran the country right after World War II.

Throughout the postwar period, "the United States had a [hegemonist's] arrogance . . . and a superpower's generosity," Toyoo Gyoten, chairman of the Bank of Tokyo and formerly one of the country's most senior government officials, said yesterday. "We did have a sense of the submissiveness of the defeated . . . [and] the sense of dependence of a spoiled child."

"At last," he continued, "both of us are about to overcome this kind of mentality." Instead of trying to mask differences out of generosity, or deference, both countries have opened a new era by rejecting accommodation to "uphold national beliefs," Mr. Gyoten said.

Added to this was the pivotal matter rejected by the Japanese in the talks -- a U.S. demand for what it calls objective criteria, and what Japan calls numerical targets, that could ultimately secure a larger market share in Japan for U.S. firms.

By any name, such a guarantee would have required precisely the kind of government regulation of the private sector that the United States has long criticized and that Japan says it must destroy if its own internal markets are to become truly free.

"How do you equate deregulation and targets?" asked Mr. Gyoten rhetorically. Answer: You can't. And that essentially is what Mr. Hosokawa told Mr. Clinton. His decision to do so is what is being lauded as the sign of a new, mature relationship.

But much of the good feeling being derived from this has suddenly begun to fray. The financial markets have reacted to the implications of a more mature Japan by concluding that it has yet to produce a credible alternative plan of its own for reducing the surplus.

In two days of wild trading (yesterday and Monday) Japanese stocks plunged, increasing the cost of capital for domestic firms. More important, the yen's value against the dollar has soared, creating an instantaneous broad-based tariff on all exports.

The two reactions could, on their own, bring down Japan's surplus, but in the most painful way -- by derailing Japan's already embattled industrial companies, which rely on competitively priced exports to boost production and provide the critical economies of scale to mass production.

Five months ago when the yen was at a similar level, Japanese executives were emphatic about imminent losses and the need to move production out of the country. It didn't take any time for such groans to be heard again. Citing the high level of the yen as a critical reason, Kawasaki Heavy Industries, for instance, announced yesterday that it will begin manufacturing robots in Nebraska.

And more bad news may be on the way. Only last week, after a debate that almost shattered Mr. Hosokawa's precarious coalition, the government won approval of a combined tax cut and spending plan as an emergency stimulus for industries like Kawasaki.

But now, predicted Paul Summerville, head of research for Lehman Brothers in Tokyo: "The movement of the yen undoes whatever positive impact there was of the stimulus package."

Other disconcerting steps may follow. The United States has threatened sanctions and a senior Japanese government official said that Japan has begun looking for areas where it, too, could impose sanctions -- signs of an impending trade war.

At the same time, the Japanese government has belatedly begun a campaign to discourage U.S. action, arguing that half of all products imported from Japan go into other products made in the United States and that, therefore, sanctions would be counterproductive. In other areas, such as autos, the official argues that restrictions would merely raise prices for U.S. consumers.

So much for logic, aggressiveness and new perceptions. tTC Already, only three days into the new maturity, some are beginning to believe the old way of reaching an agreement had merit, even if it didn't produce much. The unsettled markets have prompted cries by business leaders and politicians outside the government for the immediate resumption of talks with the United States.

A weary top Japanese government official, just back from the confrontation in Washington, said the core of the dispute is that the United States does not recognize that the new Japanese government is different from those in the past. That, however, may be easier to figure out than the answer to a second question -- how that difference will lead to better relations.

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