US, Japan Stalemate on Trade Spins Toward Retaliation

AFTER years of shoving and subtle threats over their bitter economic disagreements, the United States and Japan have finally decided to draw a line.

Both sides are sure to win political points at home for their willingness to be firm in their demands. But if trade retaliation begins soon, as seems likely, it is not entirely clear who stands to be hurt the most.

Following the collapse of trade talks over the weekend, the Clinton administration could slap some sort of trade sanctions on Japanese products as early as this week.

But Japan is likely to retaliate, and in any case US firms with ties to Japanese counterparts would suffer. Consumers could suddenly face higher prices for some goods, such as electronics. (Tokyo braces for post-summit tremors, Page 2.)

``If you are saying that imposing sanctions would affect US domestic industry, you are right,'' said Sozaburo Okamatsu, Japanese vice minister for international trade, at a Washington briefing Feb. 11.

US officials retort that any sanctions will be carefully chosen to limit collateral damage to the US economy. The US is tired of talk, talk, they say. The Clinton administration came into office saying it would take a tougher line with Japan than its Republican predecessors, and now it intends to show that it means it.

``The status quo is unacceptable,'' said a US official at a briefing for reporters.

If nothing else, the brief summit on Friday between President Clinton and Japanese Prime Minister Morihiro Hosokawa was remarkable for its frankness.

Originally the meeting was scheduled to ratify progress in the so-called ``framework'' trade talks, which aim to cut Japan's trade deficit and open US access to Japanese markets. Instead, the meeting became a forum for the two leaders to say that they had agreed to disagree over a key aspect of the negotiations.

This aspect is called ``objective criteria,'' and is intended to measure improvement in foreign economic penetration of Japan.

The Japanese say that the US is seeking numerical goals, and that such goals represent unacceptable ``managed trade.''

With Mr. Clinton and Mr. Hosokawa unable to bridge this disagreement, the US is now looking at a number of unilateral options to try and pry open Japanese markets. They include:

* Revival of an expired US trade law that would require the administration to identify countries that traded unfairly and lay out a schedule of sanctions to deal with them.

* Classification of Japanese minivans as trucks, instead of cars, subjecting them to a 10-fold increase in tariffs.

* Sanctions on Japanese telecommunications products, in response to a long-standing complaint by Motorola Inc. that the cellular phone market in Japan is impenetrable.

Such actions are necessary because opening Japan's closed business world is the key to reducing its trade deficit with the US, claims Larry Chimerine, chief economist of the Economic Strategy Institute. Fully half the $60 billion trade gap could be eliminated if Japan's domestic economy had truly free markets, claims Mr. Chimerine.

It is no longer the case that US firms are unwilling or unable to export competitive products, says the ESI economist. Recent years have seen a resurgence in such US industries as autos - and the Japanese know it.

``We have the bargaining power. They're the ones who are going to suffer more than we are,'' says Mr. Chimerine.

Other analysts are not so sure that specific market-opening measures will close the trade gap much. The root cause of the problem is that Japan's economy saves much more money than it invests, says Charles Wolf Jr., a RAND Corp. director of international economic research, while the US spends more than it invests.

Macroeconomic measures designed to encourage more Japanese spending and less saving are his answer to solve the trade problem.

Pushing the Japanese to set market-opening targets misses the point, claims Wolf. It contravenes usual US economic principles, besides.

``It will hurt us in the long run because the US tries to be an advocate of freer trading,'' says Wolf.

Ironically, Hosokawa resisted Clinton's pressure for overt trade measures partly because he wants to make the Japanese economy behave more like the US one. That means freer markets, less bureaucracy, and more emphasis on serving consumers.

Prospects for such reform are made chancy by Hosokawa's own shaky political fortunes, however. In the days leading up to his US summit he lurched from one political crisis to another at home, barely surviving with his position.

Standing up to Uncle Sam could make Hosokawa look good at home, solidifying his political future. Clinton might similarly benefit from a disagreement that both he and his Japanese counterpart insist does not threaten the basic strength of the US-Japanese relationship.