In Bill Clinton’s telling, the high-pressure agreement negotiated in Geneva last week was “historic.” Under the threat of steep tariffs on luxury cars, Japan pledged to buy $9 billion worth of U.S.-made auto parts over three years, to more than triple imports of U.S. models and to see that American cars would be available in 1,000 Japanese dealerships by 2000. “We got just about everything we wanted to get out of it,” exulted U.S. Trade Representative Mickey Kantor. There was only one problem: virtually none of that was true. In fact, Japan agreed to just two things. It will deregulate auto inspections so customers can use foreign parts to make needed repairs, and it will enable foreign companies to sell struts, shock absorbers, power steering systems and trailer hooks. In the grand scheme of U.S.-Japan trade tensions, that’s less than meager. “Look around,” says Matthew Ruddick, an analyst at James Capel Pacific in Tokyo. “How many people have trailer hooks in Japan?”
Still, Clinton was right, if for the wrong reasons. This was a historic event. For the first time since World War II, Tokyo stood eyeball to eyeball with Washington in a high-profile trade conflict – and the United states, not Japan, blinked. “A complete cave,” as a shocked former U.S. negotiator put it. Faced with the prospect of actually going through with the sanctions it had threatened so loudly, Washington opted to pull out and declare victory without getting what, at the outset, it insisted the talks were all about: better access to the Japanese market for U.S.-made cars and parts. The Japanese went out of their way not to help Clinton and Kantor save face. “Those aren’t our numbers,” said negotiator Yoshihiro Sakamoto after Kantor reeled off Japan’s purported commitments. “They have nothing to do with the government of Japan.”
The wildly divergent interpretations speak to a truism about trade. Trade talks are, first and foremost, political exercises that let both sides score points in front of the home crowd. By that measure, Clinton’s strategy succeeded; Kantor’s rhetorical flourishes drove Newt Gingrich from the spotlight for much of June, and the dramatic climax let the president show his toughness. Japan’s Ryutaro Hashimoto, a potential future prime minister, got the same bounce. His poll ratings soared as he fended off the Americans’ dastardly attempt to impose “managed trade” on Japan. No wonder the talks went to the brink. Why settle today when you can make more headlines by settling tomorrow instead?
Paper tiger: But there was more at stake in Geneva than brakes, mufflers and politics. The two largest economies in the world are increasingly competing for influence and commercial advantage. Tokyo’s cool in the face of Washington’s threats – and Japan seemed willing to endure the sanctions, despite desperate pleas for a deal by its auto companies – showed that Japan is no longer the little brother who will always give ground to maintain harmony among siblings. That new confidence wasn’t lost on the world’s most economically vibrant region, East Asia. Japan’s economic interests in East Asia now arguably exceed America’s. Its companies have poured billions into new plants throughout the region, lifting economies in the process. Not surprisingly, many nations, including China, view Japan’s pattern of development – high savings rates, protected markets, and exports, exports and more exports – as a model. Washington’s unilateral “bullying” on trade doesn’t sell. All of Japan’s neighbors, including those who share the U.S. desire for a more open Japan, quietly applauded Tokyo’s stand, and they firmly believe that Japan has finally beaten the Americans. “It doesn’t look like the U.S. got much of anything,” said a South Korean diplomat. “It makes you wonder whether they ever knew what they wanted or what they were doing.”
No one expected such an outcome, least of all the United States. “They’ll cave,” one u.S. negotiator had insisted before the settlement. “They always do.” But this time it was Clinton who ended up looking like a paper tiger. If the Japanese don’t play by America’s rules, he once said defiantly, “we’ll play by theirs.” Last week it was Tokyo’s rules, all right – and Washington got skunked.
