Trade talks with Japan important symbolically

SUNDAY OUTLOOK

August 07, 1994|By Patricia Horn

Trade negotiations between Japan and the United States broke down again. This time the collapse was over Japanese government procurement practices for U.S. telecommunications and medical equipment -- a sliver of the $155 billion in trade between these two economic giants. In response, the Clinton administration has threatened to levy sanctions against Japan if negotiations do not succeed by Sept. 30.

Should Americans be concerned by yet another failure to negotiate greater access to Japanese markets? What is at stake? And does the Clinton administration's threat of sanctions carry any muscle?

Arthur J. Alexander

President,

Japan Economic Institute of America

The negotiations have a great deal of symbolic value for the United States. Japan is our second largest trading partner, a significant number of Japan's sectors are difficult to export into, and this creates enormous frustration and political reactions in the U.S. Our political relationships and attitudes toward trade are colored by the experiences of businesses coming back saying, 'I know I could sell in Japan if the markets were more open. I'm being kept out.'

But the negotiations will have relatively little economic impact on the United States. We are basically overspending and undersaving as a nation, and so we run a trade deficit. Opening up specific markets -- such as telecommunications and medical equipment -- will have relatively little impact on our net trade deficit because that is determined by our basic savings behavior.

I think we should take the threat of trade sanctions seriously. It is a good negotiating tactic by the United States to threaten sanctions. At some point you've got to get serious. We don't have that many clubs or levers to use, and it is one

of the things we have in our arsenal. On the other hand, it is unlikely to lead to a serious trade war. The kinds of sanctions we can use are quite small -- because we are under GATT and have our trade laws -- so the ability to retaliate by arbitrarily cutting off some market is not feasible.

I.M. Destler

Acting Dean,

School of Public Affairs,

University of Maryland

Do these particular negotiations really matter? They matter to the telecommunications and medical producers. These are important export industries for the United States, industries in which the U.S. has many strong globally competitive products that would sell. If we want to keep political support for open trade policies, the government needs the active support of competitive industries like these. Japan is the second largest market in the world.

But the short answer is that it won't make much difference in the trade deficit, though the numbers are significant to the industries themselves. The basic reason for the U.S. trade deficit and the Japanese trade surplus are not related to trade barriers, they are related to the pattern of consuming and saving in the two countries.

It matters also in the sense that it is one more difficult passage in what has been a friction-filled relationship over trade between the U.S. and Japan. It shows the lack of trust on both sides on how to address opening up specific markets and whether to use quantifiable targets. I think both sides see this particular agreement as precedent setting and that is why you see them going to such efforts when the intrinsic value of the markets might not justify such efforts.

I think probably there will be some sort of negotiated resolution, but I wouldn't rule out sanctions.

Gary R. Saxonhouse

Professor of Economics,

University of Michigan

This is a skirmish on a much wider battlefield. In and of itself, there is no way that increased purchases by the Japanese government of telecommunication or medical equipment would have a significant impact on the U.S.-Japanese bilateral deficit. The issue of forging access to Japanese government procurement and the removal of unfair purchasing practices by the Japanese government is important, but it is not going to change the unemployment rate one whit.

It certainly is worth the effort by the American government. The problem is the way U.S. government is pursuing this. It has an enormous downside risk -- the possibility of roiling the currency markets. The contentious character of these negotiations runs the risk of having the dollar depreciate further and that may lead to a tightening of the money supply and an increase in interest rates. An increase in interest rates of even a few hundred basis points is likely to have a much greater impact on American employment than anything that Mickey Kantor could do as U.S. trade representative over 10 years. That is why the administration went to such great pains to assure everyone that even though talks would break down this was not something anyone should be terribly upset about.

I predict that cooler heads will prevail. The administration will continue to back off of its unwise commitment to numerical targets.

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