Why Pressure Tokyo?

Roger C. Altman

From Foreign Affairs, May/June 1994

Article preview: first 500 of 2,176 words total.

Summary:  It is time for Japan to open its markets and end the drag that its persistent trade surpluses create on world growth. The Clinton administration is right to demand measurable progress in specific import sectors.

Roger C. Altman is Deputy Secretary of the Treasury for the Clinton administration.

The strained relations between Japan and the United States cannot be explained by spurious charges that the Clinton administration is pushing managed trade, capitalizing on anti-Japanese sentiment to score domestic political points or needlessly bashing Japan over economically meaningless international surpluses. Rather, the tensions arise from two fundamental and related developments: changed American priorities and the pronounced drag of Japan?s huge current account surplus on global demand, economic expansion and job creation.

The Clinton administration?s drive to spur global economic growth and strengthen U.S. economic potential requires a new deal with Japan. For itself and all other nations, the United States is seeking to converge Japan?s international accounts with the rest of the industrialized world and to open Japan?s markets.

NO MORE FREE RIDE

The search for such convergence marks a transition in U.S.-Japan relations, the fourth such transition since World War II. First came the reconstruction period, running through the early 1950s, in which the United States consciously helped rebuild Japan?s industrial capacity in order to make democracy permanent. The United States tolerated Japan?s protection of home markets, its resurrection of certain prewar practices and the resulting keiretsu structure of industrial cross-share holdings, in which companies cooperate informally.

The second phase began with the 1952 Mutual Security Assistance Pact, which ended U.S. occupation of Japan. The pact extended the U.S. nuclear umbrella over Japan and made Japan the Asian cornerstone of the Cold War containment strategy. Japan became vital to the defense of Pacific sea-lanes and host to the largest U.S. military base in the region. Although economic issues were steadily emerging, they remained secondary to security interests.

Japan?s growing economic prowess ushered in the third phase, which lasted from the early 1970s until the end of the Cold War. During that period economic policy differences and trade frictions continually rose even while the security issue remained paramount. Japanese firms, assisted by Tokyo?s administrative guidance and targeted industrial policies, became world-class producers and successful competitors for export markets. Aided by massive domestic savings and an undervalued yen, Japan ran growing trade and current account surpluses with the rest of the world, especially the United States. U.S. pressure on Japan to open its home market produced a pattern whereby the Japanese government engaged in protracted trade negotiations while opening its economy as little as possible. When agreements were finally reached, they were often vaguely worded and subject to conflicting interpretations.

Beginning in 1993, the U.S.-Japan relationship was jolted into its fourth phase by newly elected President Clinton, whose sense of post-Cold War priorities put economic matters first. Assessing the relationship, his administration found the security component to be solid and cooperation on global development and environmental issues to be in working order. But the economic dimension was badly in need of repair and required a new perspective on Japan. A diminished need for a bulwark against Soviet expansionism accompanied a rise of other viable economic partners in the Asia-Pacific region. Within the United States, public attention sharply shifted toward ...

End of preview: first 500 of 2,176 words total.