US-Japan Trade Showdown

THE recent meeting between President Bush and Japanese Prime Minister Kaifu linked Mr. Kaifu's career to an approaching showdown in US-Japan relations. The lack of meaningful bargaining by the Japanese at Palm Springs raises questions about how serious they are about quickly resolving trade disputes with the United States, and whether Kaifu can survive the impending crisis in US-Japan relations. The immediate backdrop to the summit was the fact that the US had delayed a round of contentious trade negotiations called the Structural Impediments Initiative (SII) to help Kaifu's Liberal Democratic Party secure an important victory in the Diet Lower House elections on Feb 18. But despite vague pre-election promises, the LDP offered no tangible concessions after the elections, and SII is currently deadlocked.

President Bush must report to Congress within a few weeks on progress made in SII as well as the stalemated Super 301 negotiations. So Bush called Kaifu to Palm Springs to ask him to honor his promises to answer US trade grievances. Kaifu's response was evasive because he is in a weak position to make commitments.

Kaifu is prime minister only because the scandal-ridden LDP leadership needed someone like him to fight off the electoral challenge of Takako Doi, the charismatic woman head of Japan's Socialist Party. To the Japanese public, Kaifu has a youthful, clean image, but he is dependent on the party elders. He may be prime minister, but he is a political lightweight with little independent clout.

Kaifu is caught between irresistible US pressure and an immovable Japan. If no action from Japan comes soon, the resulting blowup in US-Japan relations could force him to step down.

There is a chance that a crisis in US-Japan ties could be avoided and Kaifu saved if the leaders of the LDP's major factions worked to help him defuse the trade issue. But three realities make that unlikely: First, Kaifu lacks personal ties to those factional leaders, as he doesn't belong to any of their factions. Second, the faction leaders think that after the Lower House election victory, they may no longer need Kaifu. Finally, a few harbor ambitions to replace Kaifu as prime minister.

The party bosses believe that Kaifu may be dispensable, figuring their big Lower House victory gives them a green light to politics as usual. One sign is that before the election, the LDP put two women into the Cabinet to appease Japanese women angry over sex scandals and the consumption tax. But afterward, both were removed against their will. And statements by elders such as Yasuhiro Nakasone and Shintaro Abe that their reelection has purified them of past sins indicate they want back the official leadership roles they had to forfeit due to their involvement in the Recruit scandal.

Those elders may give Kaifu only faint support until he is forced by his first big crisis to step down. If it does not come from relations with the US, it could hit Kaifu on the domestic scene, where he must get the budget passed in April and deal with the opposition over the unpopular consumption-tax issue.

Kaifu's resignation could be good or bad for the US. If the next prime minister repudiates the LDP's campaign promises to resist US trade pressure, and works quickly for a major overhaul of trade relations, this outcome would be good. But if Kaifu's successor uses the clean slate to start from scratch with the US, then it will be clear that the LDP is not serious about resolving structural trade issues.

The LDP, its main farmer and business constituencies, and the powerful Japanese bureaucracy may actually prefer the second outcome for two reasons. First, it gives Japan the moral high ground, because it puts the US in the position of abandoning free trade and violating important GATT provisions. Second, a trade war would save the LDP from the pain of having to restructure its insular society and economy to suit US norms of openness. At the same time, under ``managed trade,'' Japan's skilled trade negotiators could preserve an acceptable degree of access to the US market.

Was Bush naive in trying to deal with Kaifu? In fact, Bush had little choice. The US cannot afford to let relations with Japan drift under a weak leader, and it must move to keep trade disputes high on Japan's political agenda.

A resolution of trade issues can no longer be postponed, because without a restructuring of our trade dealings, the underlying political relationship could be permanently damaged. So Bush was wise to put Kaifu to the test in order to force the LDP to reveal how serious it is about trade, and if necessary, replace Kaifu with someone weighty enough to make and deliver a deal.