There is growing concern among government officials here that Japan may be headed for a showdown with the United States this fall over trade.
Despite objections from the Reagan administration, it now seems probable that Congress will pass some kind of anti-Japanese legislation later this year or early in 1986. "We might face a very critical situation in the fall when Congress comes back to Washington," said Reishi Teshima, deputy foreign affairs minister.
A particular irritant to Congress is the $36.8 billion trade deficit the United States ran up with Japan last year. This imbalance -- which may grow to between $45 billion and $50 billion this year -- is labeled unsustainable and unacceptable by influential members of the U.S. House and Senate. It already has triggered emotional calls from Democrats and Republicans alike for unilateral American reaction to force a reduction.
It is also clear to key officials here that none of the main economic trends causing friction between the two nations -- Japan's trade surplus, its booming capital exports, its high savings rate, the U.S. budget deficit and the overvalued dollar -- is likely to be altered significantly in the short run.
Congressional calls in the United States for legislation to force a reduction in Japan's trade surplus are seen by many government officials in both countries as simplistic.
"It's not that simple," Federal Reserve Board Chairman Paul A. Volcker said in a recent speech. "The trade imbalance reflects in significant part a massive imbalance in our own policy posture. Unless we deal with that underlying imbalance, a basic force driving the poor trade performance will be left unchecked."
In essence, the U.S. deficit with Japan, big as it is, is only one piece of an enormous global trade deficit that hit a record $123 billion in 1984, and which may grow to $140 billion this year, threatening survival of key sectors of American industry, according to some observers.
The bottom line concerning this huge global deficit is that it is caused primarily by an overvalued dollar that sucks in imports from all other nations, including Japan. A common view here is that, until the yen -- now about 245 to 250 to the dollar -- appreciates to about 200 to the dollar, Japan will continue to run a massive trade surplus with the United States.
It is difficult for U.S. negotiators to rebut this argument and, indeed, the new U.S. trade representative, Clayton Yeutter, bluntly told Congress a few days ago that most of the U.S. deficit problem -- globally, not just with Japan -- is caused by an overvalued dollar.
Moreover, it is generally agreed that pressures brought on Japan last year by former Treasury secretary Donald T. Regan to open the Japanese capital market have backfired, actually depressing the yen instead of strengthening it.
Officials here say that to blame Japan for America's difficulties, or to believe that the problem can be solved by greater "access" to Japanese markets -- as important as that is to some American exporters -- is to lose sight of the more basic problem.
At the same time, Japan is enjoying its global surpluses in part because Japanese companies and their employes work hard and efficiently at producing and marketing high-quality merchandise, and in part because Japan still maintains some tariffs and nontariff barriers that make it difficult for foreigners to compete.
American businessmen argue that Japan often gains and holds onto a lead -- as in the case of some computer chips -- by government intervention, including protection of the home market, fostering of monopoly, government-industry cooperation in research and development, and in other anticompetitive ways.
The situation is exacerbated by the difficulties of those industries -- telecommunications equipment is a good example -- where American suppliers contend that their products are equal to or better than the Japanese.
Meanwhile, the riches that Japan as a nation earns from its trade, coupled with an extraordinarily high savings rate, enable it to be a major capital exporter to the rest of the world. With interest rates at home low, Japanese companies and individuals are eager to invest abroad, helping, coincidentally, to finance the U.S. budget deficit.
Under pressure, Japan has been opening up its markets, although factional disputes within the ruling Liberal Democratic Party and the overshadowing effects of the illness of party boss Kakuei Tanaka have slowed the process some.
Last month, Japan, which already has the lowest average tariff schedule among major nations, announced more cuts on some 1,800 items. The government is readying new moves later this month, easing some import "standards" ostensibly set in place to keep out poor-quality or unsafe products, but which in reality act as effective nontariff barriers.
The relaxation of standards is part of the well-advertised "action program" that Prime Minister Yasuhiro Nakasone promised President Reagan, and the main basis on which it is likely to be judged. The personal "Ron and Yasu" relationship that the two leaders have developed has been an important element on both sides. For the U.S. bureaucracy, it has necessitated a softening of some of the anti-Japanese rhetoric. For the Japanese bureaucracy, it stands as a public commitment to produce results.
But a change that might alter the trade imbalance between the two nations in any significant way will depend more on these three developments:
* A reduction in the U.S. budget deficit that might lead to a reduction of the high value of the dollar, which now makes penetration of the U.S. market easier for Japanese and other foreign goods.
* An improvement in productivity in the United States, where the growth rate has fallen far behind Japan's.
* A willingness on the part of Japan to stimulate consumer expenditures, which would keep some of its huge surplus of savings at home, bolstering the value of the yen. A major criticism by American officials, endorsed by some Japanese politicians, is that Japan provides too many incentives for savings, which then are channeled (at low interest rates) into export industries.
To illustrate: Japan has a unique tax-free, small-sum savings system called "maruyu," up to a ceiling of 12 million yen (just under $50,000) per person. But as is common knowledge here, many Japanese duplicate these accounts (by using false names or other gimmicks). In a nation of 120 million people, there may be 150 million or more maruyu accounts -- no one knows for sure how many.
However, the Japanese government, which could stamp out the deception easily (or even do away with the system) looks the other way. Maruyu accounts are popular with the public, and the government basically is happy with an excessively high savings rate that, in effect, helps to finance exports.
But nothing is likely to happen quickly, if at all, to alter the Japanese propensity to save, or to the cycle of U.S. budget deficits. Thus, the debate over the proper course for macroeconomic policy in each country will continue, and U.S. Ambassador Mike Mansfield expressed the concern that it could degenerate to a point where the close diplomatic relationship between the two countries is threatened.
The tendency is growing in the United States -- a tendency that crosses party lines -- to lay the blame for the deficit on Japan's intransigence, closed market and "unfairness."
In an interview in Washington last month, Secretary of Commerce Malcolm Baldrige said "approaching this trade problem with Japan is about like trying to peel a five-foot onion." Hostility among businessmen toward Japan is stimulated when they try to penetrate the Japanese market but are frustrated by what they consider to be "unfair" treatment from the Japanese government or industry. A contrary view is offered by James Abegglen, an American management consultant, who said that the complaints "come from the losers, not the winners."
At a minimum, it is plain that it takes patience and persistence over a long period of time for foreigners -- or new Japanese companies, for that matter -- to be successful in Japan. But impatience, rather than patience, is characteristic of Americans.
Herbert Hayde, president of the American Chamber of Commerce of Japan and chairman of Burroughs Co. Ltd. of Japan, noted that "many American manufacturers are alive and well in Japan," but agreed that a greater effort is required by businessmen and the Japanese government.
But what comes through from the Japanese side in a series of interviews is a conviction that whatever steps are taken will be labeled inadequate.
"If proof of 'access' to our market is supposed to be a declining trade deficit this year, forget about it," one top Japanese official said. "No matter what's in the action package, your deficit with us this year will be $45 billion or $50 billion."
Even so, as Makoto Kuroda, director general of the Ministry of International Trade and Industry's International Trade Policy Bureau, pointed out, American exports to Japan have been inching up. Japanese statistics show a 9 percent increase in imports from the United States (against a 39.9 percent increase in exports to the United States), or from $24.6 billion in 1983 to $26.9 billion in 1984. The gain in American exports is small but, as Kuroda pointed out, it represents something better than an actual decline in American exports to Europe in the same period.
To counter the familiar argument that Japan imports largely agricultural goods, reducing the United States to "colonial" status, Kuroda's figures show that $13.9 billion of the $26.9 billion, or 52 percent, of imports from the United States were manufactured goods.
"We are a very good market for your country," Kuroda said with a smile. "The perception that there is no access is wrong." He conceded that Japan's market is not as open as the American market, but argued that it is about as open as those in many European countries.
But American consumer products are scarcely visible here, apart from a few popular items such as Shick razors and Coca-Cola. American car sales have dwindled to about 2,000 a year from 20,000 just a few years back: Mercedes-Benz, Audi and other European cars preempted the prestige market with appropriate right-hand drives and good service organizations.
Reagan administration officials tend to believe that Japan may be underestimating the protectionist backlash being generated in the United States. But a series of interviews indicate that top Japanese government leaders and many influential businessmen understand the situation with great precision, but feel helpless to do anything about it.
In his office at the Diet, Kiichi Miyazawa, chairman of the Liberal Democratic Party's executive council, said "the nature of the situation is different from other trade disputes , and we are just as apprehensive as Americans in and out of the government are. One, two, or three times in the past , we have tried to get by on palliatives. There will be nothing [of that sort] doing this time. Basically, this is recognized by the government, by business, by the public as a whole."
Miyazawa, who will be visiting Washington later this month, said his main concern is that, whatever the government in Tokyo now does, "There is no guarantee it will be appreciated as evidence of our seriousness and good will. We may still be perceived as being unfair, because [the trade statistics] won't show any results for a year or two."
Much the same view is held by Michihiko Kunihiro, a veteran Foreign Affairs Ministry diplomat with long experience at the Japanese Embassy in Washington, who is highly respected by American trade negotiators as tough, honest and willing to argue within his own bureaucracy.
Japan must do away with unfair regulations, he tells Japanese businessmen as well as colleagues in government. "But I think we get into a dangerous area when the definition of 'unfair' is simply being different," Kunihoro said. This is a reference to increasing awareness in the West of business and cultural customs that differentiate it from Europe or America, such as the "keiretsu" system, by which groups of companies give first priority in business relationships to their associates, next to other Japanese companies and last to foreigners.
To break into such a system, a foreign product must not be merely as good as its Japanese equivalent, it must be better, or offer a cost advantage. And in either case, it must have a reasonably good servicing back-up system. For the most part, Japanese businessmen and consumers tend to challenge the quality of American products.
"Is the trade deficit with Japan really what's troubling the United States?" Kunihiro asked. "I can't really believe it. If Japan is the problem, how come the United States now has a trade problem with the Common Market?"
Intellectually, Congress may accept the validity of what Volcker, Yeutter and Kunihiro are saying. But congressmen on both sides of the aisle understandably react to pressures from industries in their home states or districts affected by imports. Right or wrong, it is easier to point a finger toward Japan than to an abstract yen-dollar relationship.
Officially, the Reagan administration is against the frequently proposed 20 percent import surcharge. U.S. trade officials say that an import surcharge, unless directed only at Japan, would create more problems than benefits, and invite immediate retaliation from Europe, Canada, Australia and other trading partners.
But an import surcharge aimed only at Japan would be illegal in the eyes of the international trade agency, the General Agreement on Tariffs and Trade. (Some administration hawks think that the United States ought to slap an import surcharge on Japanese imports anyway, ignoring the GATT.)
Moderates within the administration who call for "doing something" would prefer action along the lines of Sen. Jack Danforth's (R-Mo.) bill, which would direct the president to take reciprocal action against Japan if, after a specific period of time, Japan did not agree to allow imports of telecommunications equipment.
A high American official said: "If they [the Japanese] were convinced that we'd take some unilateral action, along Danforth-bill lines, influential businessmen in Tokyo would go to Nakasone and say, in effect, 'We better work something out.' "
It's doubtful that Japan-bashing will produce a solution to the trade problem; but that approach is almost certain to increase already bitter feelings among the Japanese people.