Japan Eyes President-Elect For Clues to Future Action On Its Rising Trade Surplus

JAPAN'S widening trade gap with the United States is likely to become an early test of strategy for the economic team being selected for the Clinton Cabinet.

The trade imbalance, a benchmark of both US competitiveness and Japan's lingering mercantilism, is expected to break the record $52.1 billion set in 1987. Japan's trade surplus with the world could top $130 billion, a one-third jump in two years.

"How Japan responds to its rising global trade surplus will be closely watched by the incoming administration, and by all those who have worked long and hard to nurture more-balanced economic links between our two nations," US Ambassador Michael Armacost told a Japanese business group.

As president, Bill Clinton will be confronted with the US-Japan trade gap soon after taking office. He is due to travel to Tokyo in July for the annual summit of seven industrialized nations.

Japanese officials are wincing at the prospect of Mr. Clinton threatening "managed trade" or dictating a set market share as a way to help US exporters in the Japanese market, rather than focusing on improving US industrial competitiveness.

One top Japanese trade official, after a visit to Washington in early December, complained of a perception among Clinton Democrats that Japan's market is closed. "Until they change this perception, we cannot find the right cure" for the trade gap, said Noboru Hatakeyama, vice-minister at the Ministry of International Trade and Industry (MITI).

But, Mr. Hatakeyama says, "The trade figures are not encouraging for the coming year. For the time being, there will be some friction." Pricey products

Much of trade surplus with the US is due to Japan's more up-scale and pricey export products, such as luxury cars and expensive computer items, rather than a surge in the volume of exports.

But the widening of the trade imbalance also reveals a weakening of consumer demand in Japan, which reduces the nation's appetite for imported goods. Since 1989, the Bush administration tried to get Japan to restructure its economy away from aggressive exporting and toward raising domestic demand.

But that effort appears to have failed as domestic sales in the third quarter of 1992 declined for the first time since 1974. Japan's economy shrank at an annual rate of 1.6 percent in the third quarter, after zero growth in the previous quarter. Under US standards, Japan is in a recession, and may not recover until late 1993.

To perk up sluggish demand at home, Prime Minister Kiichi Miyazawa announced a massive $87 billion spending package in August. But critics say the package may not shrink the trade gap.

"Instead of emergency stimulative measures, the Miyazawa administration should bring Japan's trade surplus under control," states Noboru Makino, director of the Mitsubishi Corporation's research group, in a Sankei newspaper column. "Unless we can fit amicably into the global trading system, we'll find ourselves out in the protectionist cold."

On Nov. 24, MITI sent a letter to major Japanese firms and in-dustrial associations asking them to help reduce the surplus by buying more foreign goods. Such import "advice" has been given since 1987, although the scope this time was larger than usual.

Many Japanese leaders say the surplus is a temporary problem with no big consequences. "If this large surplus contributes [to] any economic plight in our trading partners, such as an increase in unemployment ... certainly there will be critical views taken by our trading partners," says Toyoo Gyohten, Bank of Tokyo chairman. But the surplus, which has been rising steadily for the past 23 months, has drawn criticism from both Asian and European nations as well as from the US.

"I find it vastly amusing that the Finance Ministry manages each month to find some ingenious way to attribute the most recent increase in the surplus to yet another `one-time factor,' " says Ambassador Armacost. "Curiously, although Japan's trade surplus with the world is surging, Japanese officials display rather limited concerns about foreign reactions to that." `Level playing field'

While one solution to the trade gap lies in strengthening the value of the Japanese yen, Clinton might choose the route of trying to change Japan's economic structure. "We have to achieve some level playing field" with Western nations about the rules of competition, says Toru Kusukawa, chairman of Fuji Research Institute Corporation. If high growth returns to Japan and the surplus increases even more, he says, "it will be unbearable for the rest of the world."

But, Mr. Gyohten suggests, "There will be no quick fix for the trade issues. We have tried for decades - we tried macro, micro, sectoral, structural, exchange rates - each one did work but did not provide the panacea."

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