War everyone loses

PUBLISHED : Monday, 14 February, 1994, 12:00am
UPDATED : Monday, 14 February, 1994, 12:00am

UNITED States President Bill Clinton is facing a serious test of leadership. The issue is America's trade with Japan, trade which runs very heavily in the Asian nation's favour.

Mr Clinton and Japanese Prime Minister Morihiro Hosokawa failed in their summit meeting late last week to agree on ways of cutting America's HK$385 billion trade deficit with Japan. So Mr Clinton is now considering sanctions to try to force Japan to openits markets more to US goods. If he were to go ahead, however, he would risk a trade war, which would help neither America nor Japan and could do some harm regionally.

The problem is that this apparently tough option of punishing Japan is really the easy option. Politically, appearing to stand up for American interests is much more appealing than continuing with the hard work of negotiations. Mr Clinton, however, should reject the dramatic idea of sanctions and choose instead the more mundane path of diplomacy.

Sanctions are hard to implement and, even when they work, they are imposed at a cost. Japan would lose if sanctions were imposed but there would be American losers as well - companies which do business with Japan, for a start, as well as US consumers, who would be denied access to certain types of Japanese goods at prices they are clearly happy to pay. There might be more American losers. That would depend on whether, or how, Japan struck back. In a trade war, everyone loses.

The victims would include both the US and Japanese economies. Although America is now experiencing sound growth, it is not long out of recession, a state which still has the Japanese economy in its grip. The impact of a trade war on both economies would be negative, at a time when both need the stimulus of more - not less - trade. The impact around the region would also be negative, if only because of nervousness in stock and money markets.

America has a case against Japan, for that country does use various non-tariff barriers (often simply a complex bureaucracy and an arcane distribution system) to protect its home market. America's preferred solution to the problem - getting Japan to agree to numerical targets for the import of US goods and services - is artificial and might be unworkable. It is clearly unacceptable to Japan. But there is no doubt that Japan needs to open its doors wider to US trade. And there is no doubt that America has a right to keep pushing. Sanctions, however, would prove to be the wrong weapon to use in this particular fight.