TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/021389/02138900.016

Text File | 1990-09-17 | 5.9 KB | 107 lines

BUSINESS, Page 60

Tiptoe Through the Tensions

Bush and Takeshita try to start out on the right foot


    "If they don't hit it off, we're all in the soup," warned
Yasuhiro Nakasone, Japan's former Prime Minister, as his successor
prepared to meet President Bush last week. But there was little
cause for worry. When Noboru Takeshita became the first foreign
leader to hold a face-to-face meeting with the new President, the
2 1/2-hour session was as mild as Washington's 60 degrees F
February weather. Gone were the threats of a trade war. Absent too
was much of the anger that provided a harsh overtone for recent
U.S.-Japanese summits. In their place was the hope, albeit still
as fragile as a cherry blossom, for an era of growing harmony
between the two countries that together represent almost half the
non-Communist world's economic output.

    Yet unlike the meetings between Nakasone and Ronald Reagan,
who called each other Ron and Yasu, the Bush-Takeshita encounter
produced few signs of rapport that could help defuse a new outbreak
of tensions. The two appeared stiff and uncomfortable as they stood
side by side in the White House Rose Garden after a lackluster
working lunch with senior advisers. Said Bush, who will return the
visit later this month when he attends the state funeral for
Emperor Hirohito: "Simply put, we respect one another. We need one
another." Replied Takeshita: "In your words, the new breeze is
blowing, Mr. President."

    The ritual rhetoric could not paper over the underlying
problems in the relationship between the two allies. Chief among
them is Japan's stubborn trade surplus with the U.S., which now
seems stuck at more than $50 billion a year. After shrinking during
much of 1988, the trade gap widened significantly last November,
leading some economists to conclude that the improvement has at
least temporarily stalled. The trade gap has defied such remedies
as the dollar's steep two-year decline, which was expected to slow
Japanese exports to the U.S. by making them more expensive. One
reason for the lack of success is the still considerable U.S.
budget deficit (fiscal 1988 total: $155 billion), which
overstimulates the American economy and its demand for Japanese
products.

    Nonetheless, Japan has made solid progress in overhauling its
economy to help ease the trade imbalance. The country is phasing
out protectionist quotas on U.S. beef and citrus products, for
example, and has opened its construction market to foreign bidders.
Japan imported 48% more U.S.-made computers and office equipment
in 1988 than in the previous year, and 55% more semiconductors and
telecommunications equipment. "A massive structural change has
taken place in the Japanese economy," says economist Noriko Hama
of the Mitsubishi Research Institute. "We are much more
import-oriented than we were a couple of years ago."

    While Takeshita's popularity at home has been weakened by the
adoption of a 3% consumption tax that he championed and a stock
scandal that forced the resignation of three Cabinet members, he
has been successful in expanding Japan's role as a global
philanthropist. Among the signs: a planned 7.8% increase in Japan's
foreign-aid budget. The growth will lift Japanese overseas
assistance to $9.6 billion for fiscal 1989, and should propel Japan
past the U.S. as the world's top donor.

    Tokyo has also unveiled a 5.9% rise in defense spending, which
boosts Japan's military budget to $31 billion. The gain failed to
satisfy Secretary of Defense-designate John Tower, who denounced
Japan's constitutional limit on military power as a "lousy idea"
last month during Senate confirmation hearings. But the increase
demonstrated Japan's sensitivity to U.S. critics who want Tokyo to
shoulder more of its defense burden.

    The two nations remain deeply split over ways to handle the
mounting crisis in Third World debt, which now totals $1.2
trillion. While Japan would like to see a bigger role for the
International Monetary Fund in reducing the debt burden, the U.S.
fears that approach would simply funnel public funds into bailing
out private banks. Washington, in contrast, thinks the IMF should
take a harder line in collecting the IOUs that it has already
extended.

    At week's end the debt crisis perplexed senior finance
officials of the seven major industrial countries, or G-7 group
(Britain, Canada, France, Italy, Japan, the U.S. and West Germany),
at a summit meeting in Washington. Treasury Secretary Nicholas
Brady, who asked for the meeting, billed it as merely an
opportunity for the participants to get acquainted with the
Administration and the new Japanese Finance Minister, Tatsuo
Murayama. But for the first time the U.S. conceded that a
debt-reduction plan pushed more than three years ago by former
Treasury Secretary James Baker has not been a complete success. The
so-called Baker Plan called for debtor nations to adopt free-market
policies and for lenders to make new loans on easier terms. Now
some G-7 leaders have proposed encouraging greater private-bank
lending to developing countries by giving the institutions some tax
incentives or regulatory breaks.

    Despite the lingering U.S.-Japan disagreements, the two
countries have become so economically intertwined -- producing
everything from Hondas in Ohio to IBM computers in Tokyo -- that
competitive measures like the trade deficit may no longer give a
complete picture of the relationship. "The notion of the U.S. vs.
Japan is obsolete in this day of globalization," observes Kenichi
Ohmae, managing director of the Tokyo office of McKinsey & Co., a
consulting firm. Concurs Robert Hormats, vice-chairman of Goldman,
Sachs International: "We don't have the luxury of constantly
fighting each other." George Bush and Noboru Takeshita have already
learned that lesson. But while the two men avoided plunging into
a new bowl of soup last week, they made little progress in climbing
out of the old one.