PRESIDENT Clinton's plan to cut the United States government deficit has put Japan on the defensive in ongoing talks in which each nation has demanded changes in the other's economy.
Up until now, Japan has made almost all the compromises in negotiations known as the Structural Impediments Initiative (SII), which were started in 1989 by the Bush administration as a way to go beyond specific trade disputes and to "harmonize" the different types of capitalism in the US and Japan.
So far, the US has failed to accept the main Japanese demand that the US reduce its deficit, because of the former standoff between a GOP White House and Democrat-controlled Congress.
"We must be prepared for the harder pressure that the US president will likely bring to bear upon Japan to slash its trade surplus in return for his domestic austerity program," stated a Mainichi newspaper editorial. The initial Japanese reaction to Mr. Clinton's economic proposals was relief that the US might be addressing its basic economic problems and turning away from blaming foreign trading partners for US woes.
"Drastic measures that improve US competitiveness and secure stable growth would be a plus for the world economy," says Gaishi Hiraiwa, head of the Japanese Federation of Economic Organizations.
But Japanese officials say Clinton failed to mention a strong commitment to free trade and instead emphasized his strategy would be to expand trade on "fair terms," or force an opening of overseas markets for US exports. This point was confirmed by US Trade Representative Mickey Kantor the day after Clinton's Feb. 17 speech to Congress. He noted a "troubling" imbalance: US exports to Japan dropped last year even as Japanese exports to the US "surged" by 6 percent.
As a result, he said, the administration "intends to press" Japan to live up to commitments made in the past to open its markets. A year ago, Tokyo officials began to say that Japan had made enough changes from the SII talks, such as beefing up anti-cartel enforcement and opening the distribution system, without reciprocal steps by the US, such as cutting the budget.
But Prime Minister Kiichi Miyazawa, after praising Clinton for his economic plan, warned that the US president could bring fresh pressure on Japan. "We are worried about creeping protectionism," says an official with Japan's Ministry of International Trade and Industry. At the same time, Japanese officials warn that they will retaliate against US trade moves.
One sensitive pressure point for the US is its increasing dependency on Japanese high technology for the American military industry. In many past trade disputes, some US officials were able to cite security and political concerns to dampen tougher trade actions against Japan.
On Feb. 20, the Nikkei business newspaper reported that Japan had decided to reject a US request for the two countries to work jointly on upgrading US weapons. But it was unclear if the decision was tied to recent Clinton moves.
Another Japanese concern about the plan is a possible slowdown of the US economy if consumers reduce their purchases.
"The economic recovery in the US will conceivably slow down in the short haul due to the budget retrenchment," stated an Asahi newspaper editorial. "This will inevitably have a negative effect on the Japanese economy that is struggling in the doldrums. But this is not something to worry about. In the long run, US-Japan relations can be stabilized only by the recovery of the American economy. We will be watching and pinning our hopes on the grade-scale experiment by the new US administration," it stated.
Clinton surprised Japanese officials by saying he was reducing his original target for taxing foreign companies over a four-year period from $45 billion to $6.5 billion. Instead of revising the law, he suggested stronger enforcement of current regulations.