A review of the past 12 months foreshadows a deepening rift between the U.S. and Japan. Though government-to-government tensions are serious enough, there is another regrettable result. The downward spiral in the trust levels between the people in the two countries undermines business relations. Leaders in each nation have reacted to these fears and special interests, often taking the low road in foreign and trade policies, while ignoring the over-riding importance of U.S.-Japan relations. Two events – one at the beginning and one at the end of 1991 – demonstrate the depth of U.S.-Japan problems.
The year began with electrifying events in the Persian Gulf war. Among the many consequences of Operation Desert Storm, U.S. resentment grew over the reluctance of Japan to support the war effort despite their heavy dependence on Gulf oil. The Japanese press circulated reports that Japanese public sentiment about the war was, taigan no kaji, "a fire on the other side of the river." By mid-February, Japan reluctantly paid only 25% of the financial resources it pledged, and sent 800 fax machines and a shipment of light trucks. As the world lined up to support the coalition forces, Americans were left wondering about Japan’s apathy and whether Princeton economist Robert Gilpin was right when he observed that the U.S. military is, "...a mercenary force defending Japan in return for its capital."
Toward the end of 1991, millions of Americans paused to remember the 50th anniversary of the attack on Pearl Harbor. Like that awful day in Dallas, or the one giant leap for mankind, it is one of the memorable events permanently etched into our national psyche. As I observed the events leading up to the Pearl Harbor anniversary, the image that came to mind was oftwo quarreling children – each determined not to be the first to apologize. At one point, both Tokyo and Washington were issuing simultaneous statements asserting that no apologies would be forthcoming for either the attack on December 7th or for Hiroshima and Nagasaki. Meanwhile, this adolescent machismo occurs against a broader environment of increased name-calling and a worsening pushing and shoving in the diplomatic and trade arenas.
Regrettably, the recent trip by President Bush only contributed to the U.S.-Japan rift. For far too long, the script has gone something like this: Political pressures build at home, and we make increasing demands on the Japanese. After much foot-dragging in Japan, they make watered-down “concessions,” designed to appease domestic political apparatuses in both countries. This, in turn, is followed by a new round of U.S. demands, as we ratchet up the definition of what is “fair.” Two years ago, it was the arm-twisting over FSX. Last year, it was the Structural Impediments Initiative designed to “remove trade barriers.” This year, in preparation for the upcoming Presidential election, Senator Riegle and Representative Gephardt recast trade issues into domestic political rhetoric and proposed legislation aimed at Japan. Recognizing his vulnerability, Bush quickly announced that his Asian trip was all about “Jobs, Jobs, Jobs.” Once in Japan, dropping all pretense of diplomacy, White House Spokesman, Marlin Fitzwater, said, “The talks are severe...we’re pressing them hard and they’re screaming about it.” Even before the visit concluded, members of Bush’s own delegation, to say nothing of the widespread condemnation in the Japanese press, were working to lower expectations about the Tokyo Declaration. Many believe this highly stage-managed accord is designed to mollify trade-based anger in the U.S., but offers little of substance to deal with underlying structural problems between the two countries.
Not surprisingly, the results of this maneuvering do not bode well for relaxing the tensions between the two countries, nor for reducing more than two decades of trade deficits with Japan. As Zbiginiew Brzezinski, former National Security Advisor to President Carter, stated more than a decade ago, "The Japanese feel victimized, the Americans feel exploited, and the resentment is reciprocal." Unfortunately, this widening rift spills over into the perceptions of people in the two countries. Several surveys in each country confirm that both Japanese and Americans now see the other as a threat and even “the enemy.” In the U.S., for example, there is a widespread belief that Japan is “taking over.” In Japan, even before the disintegration of the U.S.S.R., and despite a history of acrimonious Soviet-Japan relations, high school students indicated that they believe the next war would be fought with the U.S.-not Russia. On this side of the Pacific, popular best-sellers play to the Japan-is-taking-over theme. In Japan, the popular press has difficulty satisfying the public’s appetite for more of the U.S.-in-decline books and articles.
The consequences of the widening rift are profound. At a national level, unless we can stem the trade imbalance, it is likely that economic bickering will plunge us into protectionist measures and eventually into a trade war. Billions of dollars in invested assets in both countries could become vulnerable to government controls or even expropriation. Just as certainly, the stakes are far higher than the bilateral relationship. They include the stability of the entire Pacific Rim area, and the ability of the two most prosperous nations on earth, Japan and the U.S., to provide economic leadership for the world. As lessons from what used to be the U.S.S.R. instruct us, the latter also implies that governments are not immune to failing economic policies. On a local level, mistrust and suspicion between citizens in the two countries diminish the climate for healthy and prosperous business opportunity. Left unchecked, it could eventually erode the influx of Japanese plants and investment in our area.
Diplomats, trade experts, scholars and Japan-watchers of every ilk are busy formulating remedies for the deepening chasm between the U.S. and Japan. Just what can be done? The following courses of action rest on the premise that as long as the account deficit with Japan persists, it will breed only more mistrust, suspicion and mutual contempt. Left unchecked, it is a fertile breeding ground for unhealthy foreign and trade policies based on reaction and reprisal rather than on clear thinking about the long term interests of our nation.
What Japan Should Do
Japan needs to articulate its vision for the world. More than one Japan expert has invoked the name of Paul Kennedy’s Rise and Fall of Great Nations in noting that we are witnessing the decline of Pax Americana, or a century of global American influence in the world, and the concurrent ascent of Pax Nipponica. From a technological standpoint, Japan’s economic power has already eclipsed us. Formally, their G.N.P. will pass that of the U.S. near the turn of the century. In fact, Japan’s economy is growing so rapidly it adds roughly the equivalent of France’s G.N.P. every 4 years. By comparison, our declining economic performance translates into a strain on the social fabric and a diminished standard of living for our country. Is Japan, as many associates of mine have questioned, “...out to conquer the world economically”? Are we up against invincible Japan, Inc., a pin-stripe, fierce samurai which engages in predatory capitalism? Japan’s silence about what it will do with its new-found wealth only serves to fuel speculation, and western worry, about its underlying intent and the answers to these questions.
Similarly, U.S. dependence on Japanese capital invites anxiety. When Japan went on a buying spree of U.S. assets and acquisition of so-called trophy real estate (e.g., Rockefeller Center), it only served to heighten anxiety in the U.S. When Tokyo securities firms withdrew from buying Treasury notes, as they did in 1987, it caused a spike in interest rates and a cardiac misfire in Wall Street financial markets. Now holding some 40% of our national debt, Japan is in a position to use this financial leverage to serve its own national interest. These acts would be reason enough to worry, if we knew of Japan’s intent.
However, we do not. Japan, with its new-found economic muscle, has never stated what the world could or should look like with increased influence from Tokyo. And, it is making people here very nervous. For much of this century, the world has known what American leadership and values have meant. Truman’s vision of Pax Americana, for example, gave us The Marshall Plan, and a view of the world in the post war era. Bush did the same thing, however awkwardly, in talking about a new world order in the face of Communism’s demise. It’s time for Japan to make its intentions known.
Japan also needs to read U.S. political tea leaves much more carefully. Much has been written about Japanese political clout in this country, including at least one best-seller about Tokyo lobbyists in Washington. For all of the trade representatives and formal attempts to influence American public opinion, I conclude that Japan has failed miserably. Japan has seriously underestimated the American public’s ire and growing consternation about the lack of reciprocity. It’s taken a while, but the importance of free and fair trade is now understood on Main Street, U.S.A. Japan runs a trade surplus with every nation with which it trades, seemingly defying any reasonable explanation of the economic concept of “comparative advantage.” After more than 20 of consecutive years trade deficits with Japan, the Congress and the public are weary of being told to “be patient.” There is growing pressure now to tilt the playing field (that never has been level) more in our direction with retaliatory trade measures. While I do not favor such measures, it is clear that Japan’s ineptitude at misreading U.S. public opinion has contributed to trade friction. Simply stated, if there is a silver lining to the otherwise dismal Bush trade visit, maybe it is to give Japan a wake-up call.
Finally, Japan should completely and unconditionally purge the term, “Japan bashing” from its collective national vocabulary. This is asking a quite a lot of Japan, since it has gone to extraordinary lengths to cultivate an army of Japan apologists, to say nothing of its own public relations apparatus who promote the idea of a beleaguered, picked-upon Japan. Deeply rooted in the Japanese concept of higaisha ishiki, or victimhood consciousness, this particularly noxious epithet stifles discussion of substantive issues. It de-legitimizes frank dialogue between allies. For example, when politicians, journalists or academics criticize France or Canada, the terms French or Canadian bashing are never heard. At best, the term lowers legitimate criticism of Japan to a lower plane as if these two nations have so little in common that they must walk on eggshells with one another. At worst, it imputes racist motives to Americans who utter anything critical about Japan, as ultra-nationalist Shintaro Ishihara attempts to do in his best seller, “The Japan That Can Say No.”
What The U.S. Should Do
Prescriptions about Japan’s options are less certain than those offered for our country. Japan will ultimately pursue policies which it believes is in its own national interests. We should do the same. It begins with the gut-wrenching task of facing up to the fact that trade issues and the decline in competitiveness are problems of our own making, not Japan’s. Japan is vulnerable to criticism on a wide array of trade issues, but it should not become the whipping-boy for the cluster of problems that hurts our competitive position and our society. To my knowledge, Japan is in no way responsible for record deficit spending, the wholesale failure of American public education, fraud and financial stupidity in the savings and loan industry, violent crime, or the political gridlock that fails to deal with these problems.
We want quick, painless solutions and there are none. Until we get inspired leadership that can galvanize public opinion about how to deal with our problems, Japan offers a tempting target for blame. Japan seems very wrong-headed about several trade issues, but we must not succumb to scapegoating. If we want to re-capture control over our own destiny, it will take sacrifice that begins with this intellectual honesty.
Second, we should decide what we want from Japan. From Japan’s perspective, it must be the ultimate puzzle to determine how to manage its relationship with the other great Pacific power, the U.S. We have been masters of sending mixed signals to Japan.
Three examples briefly illustrate this point. We accrue record deficits, financed mostly by Japanese capital. If you benefited from the Reagan economic expansion, remember it was made, or at least financed in Japan. Just before his well-publicized collapse during the Tokyo state dinner, Bush exhorted Japan to play a greater role in the world militarily. Finally, our market economy permits an investment climate where sellers of key assets and buyers with capital do business. Each of these three scenarios suggest an inherently contradictory signal. Because our savings rate and rate of capital formation is so low, we have become “hooked,” in the truest addictive sense on Japanese capital. Which do we want, continued money and dependence on Japan, or control over our own financial destiny? How do we reconcile the need for Japan to play a greater role in burden-sharing (as in the Persian Gulf War), without raising the specter of re-militarization by the Japanese right wing? How can we allow sellers of golf courses, buildings, key technological firms and sweetheart give-away deals from nearly all 50 state-houses off the hook, then deride the Japanese because they buy? The simple answer is, we can’t. We can’t have it both ways. The U.S. must decide what we want from Japan on a broad number of issues.
The prospects for this occurring are not high unless we formulate a policy for dealing with Japan. What has passed for policy toward Japan has been misguided attempts to re-make Japan in our own image, requiring them to change according to what we say – or demand – from the Japanese point of view. The disarray and conflicting signals we give to Japan result from policy makers in Washington who know little of Japan. They also seem oblivious to what is evident to nearly everyone else. Maintaining rigid adherence to laissez-faire economics means Japan wins and we don’t. Several experts have noted that this dogmatic allegiance to the free hand of the marketplace comes as close as anything that this country has to a state religion.
Defenders of the laissez-faire doctrine react at even a whisper of trade policy. It should be remembered, though, that these are the policy gatekeepers who produced the current technolgical and economic decline. They take the view, exemplified by the Bush White House official, who said, “Potato chips or semi-conductor chips, what is the difference?” ignoring the obvious national interests we have in differentiating the two. As Clyde Prestowitz, veteran trade negotiator has repeatedly said, the issue is not pure free trade nor total protectionism. We have never had and never will have either one.
Laissez-faire generalities about free trade conveniently ignore the fact that much of our trade is already managed, while also masking the underlying stakes. On the one hand, those who have vested economic interests lip synch the rhetoric about the world becoming more interdependent, sometimes accompanied by assertions that Japan is becoming more like us. The world, of course, is growing more interdependent and thankfully, our similarities and common interest with Japan still outweigh our differences. On the other hand, if the current rift in bilateral relations becomes a fracture, the mutual contempt could emerge from behind closed doors. The pushing and shoving could get more mean-spirited with nearly everyone coming out the loser.
In this high stakes game, the pot is our economic destiny. That includes our standard of living, owning our financial destiny and yes, jobs. Who will make the high-tech products in the 21st century, and reap the profits, and who will buy them is also at stake. From the Japanese perspective, Akio Morita, CEO of Sony, reflects the intent of many Japanese business leaders when he notes, “The 21st century will become the century of superpower economic warfare and we, the Japanese, will win.” I am convinced that he is wrong, but I am very worried. To coin the ageless football metaphor, for the home team, it’s 4th and very long.
This article is written by Timothy T. Serey, Ph.D., Professor of Management, College of Business, Highland Heights, KY 41099-0506 (TEL.: 513-891-8758). If you agree with its contents, fax it to your congressional represenatitve.
