U.S., Japan in Quiet Fight Over Leadership Role

WASHINGTON —  The images flash across television screens all over the United States: Tall, gregarious President Bush bounds past an honor guard to grasp the hand of Japanese Prime Minister Noboru Takeshita. The two men exchange warm greetings. They are still smiling broadly as the camera cuts to the next scene.

But the waving flags and bright colors belie a less pleasant reality: Behind the two leaders’ careful smiles, their two nations are engaged in a quiet but intense struggle over how much of America’s traditional postwar economic power should be transferred to Japan.

The outcome is vital to the United States. Although strengthening Japan’s economy has been a goal of U.S. foreign policy since just after World War II, the stark fact is that economic power is essential to ensuring that a nation’s vital interests are met.

Japan’s critics fear that it will exploit the levers of power to promote its own economic empire, to the detriment of U.S. prosperity.

“Diminution of American power is not good for Americans,” declares Clyde Prestowitz, a former senior U.S. trade official now at the Carnegie Endowment for International Peace.

In the final analysis, many Americans suspect, Japan will fashion its foreign aid into an instrument to finance sales of Japanese goods abroad. It will tailor its debt relief for Latin American countries to gain a foothold there for Japanese banks and exporting industries. It will insist that its new factories in the United States and Europe buy from Japanese parts makers at the expense of local suppliers.

Nor are the stakes strictly economic. Japan has served notice that it believes its enhanced economic stature entitles it to decidedly more say in such critical matters as Western-Soviet relations, the economic integration of Europe and aid to developing countries.

Not only are the Japanese moving to solidify their place as the major power in East Asia, they also are pushing to gain more influence in Latin America, traditionally an American geopolitical preserve. And they are straining to play a wider role in the Middle East.

The Japanese insist that the United States has nothing to fear from their country’s new-found economic and political muscle.

“No nation can substitute for the United States as the leader of the democracies around the world,” Takeshita assured Bush during his visit to Washington earlier this month. “I look to you . . . for wise and firm leadership.”

Difficult Adjusment

Even so, the adjustment may not be easy. At the very least, Alan D. Romberg, a Japan analyst at the Council on Foreign Relations in New York, says of Japan’s new global power, “I think that it’s going to take some getting used to.”

And Prestowitz asserts that Japan’s economic prowess is already undermining the traditional postwar relationship between the two nations, with the United States as mentor and Japan as protege.

“The U.S. recognizes in its heart that it is not winning in this competition, and it tries to hide the truth . . . to hang on to the symbols of power,” he contends. “And that makes for a very uneasy relationship.”

Prestowitz acknowledges that “we have to be prepared to concede to some greater Japanese influence.” But he warns that the United States needs firm understandings about what it wants in return--perhaps a further commitment by Japan to increase its defense spending, thus easing the burden on the United States to maintain the industrial world’s military might.

The competition for economic dominance is being played out across a variety of fronts:

-- In multinational organizations such as the International Monetary Fund and the World Bank, where the two are jousting over how much to increase Japan’s voting power--and correspondingly pare that of the United States. The United States is blocking an increase in IMF lending resources, partly over the Japanese question.

-- For influence in the Third World. Partly because of the current high value of the yen, Japan has surpassed the United States as the world’s largest provider of foreign aid and has become the world’s leading lender.

-- In downtown Los Angeles and countless other U.S. cities. The cash-rich Japanese, aided by a strong yen that makes U.S. assets a bargain, are scrambling to buy American firms and real estate, prompting worries that America is “selling out” to Japanese interests.

The economic skirmishing has bred rising resentment in each country toward the other.

Many Americans fear that the new wave of Japanese investment in the United States will lead to a Japanese “takeover” of American resources, robbing the United States of control over its own economic destiny. The apparent stalling of last year’s improvement in the U.S.-Japanese trade deficit has revived fears, particularly in Congress, that Japan is besting the United States in competition for international trade.

At the same time, Japanese are becoming more convinced that the United States is in decline. One of the major reasons for Bush’s decision to make his current Asian tour--he flew from Japan to China on Saturday and will stop off in South Korea on his way home Monday--was to dispel that impression.

The new generation of Japanese--too young to be grateful for America’s generosity after World War II--are more aggressive than their elders.

The Japanese “have gained enormous self-confidence from their achievements,” says James W. Morley, a Columbia University Japan specialist who is spending this year at Kyoto University. It is a feeling, he says, that has been intensified “from reading Western books that talk about a decline of America.”

Complicating the relationship between the United States and Japan is that, now more than ever, their economies are intertwined and interdependent. Neither side, experts in both countries agree, can survive comfortably without the other.

As Bush himself pointed out before leaving for Japan, the United States needs Japanese investment to help finance both its federal budget deficit and corporate expansion.

The Federal Reserve estimates that Japanese buyers sopped up about $45 billion of U.S. Treasury securities, corporate stocks and bonds and real estate during 1988, the equivalent of about one-third of the $134-billion deficit that the United States ran in its current account, which measures all trade and foreign investment flows. Without that infusion of available credit, interest rates in the United States would have risen even more sharply than they did.

“Don’t get so concerned over foreign ownership that you undermine the securities markets in this country,” Bush admonished.

Stabilize Dollar

More than that, Washington needs Tokyo’s help in the international currency markets to keep the dollar from tumbling much further. Additional declines in the dollar, which now buys only half as many yen as it did in 1985, would contribute to the already worrisome U.S. inflation rate by boosting the cost of imports.

Likewise, Japan needs the United States--as an export market, as a manufacturing platform for shipping autos and other goods to Europe and Third World countries, as a safe and profitable place for cash-rich Japanese to invest their money, as a guarantor of its defense.

Kent Calder, a Japan specialist at Princeton University, points out that the change has been in the making for two decades. Tokyo’s economic prowess began increasing in the late 1960s, when Japan began expanding its steel plants and other heavy industries. Earnings from auto exports in the early 1970s and then consumer electronics goods propelled it at a dizzying pace.

At about the same time, the U.S. economy began to falter. Inflation soared in the mid-1960s. Productivity declined. And the quality of American goods began slipping noticeably. On many items--from television sets to bicycles--American manufacturers simply gave up and ceded the market to imports. The U.S. steel and auto industries took enormous losses before they began moving to meet the challenge.

Calder says gyrations in the value of the dollar finally pushed Japan into economic superpower status. When the U.S. currency soared during the early part of the decade, American products became uncompetitive against foreign goods. Foreigners gained unprecedented footholds in the U.S. market--and unprecedented profits as well.

When the dollar plummeted in 1985, the Japanese were sitting pretty. Because of their huge profit cushion, they were loaded with cash. And the plunging dollar made the yen’s buying power far greater than anyone had dreamed.

As a result, the Japanese began--easily--buying up everything they could see. They were spurred by protectionist sentiment in the United States, which encouraged them to build or buy manufacturing plants in this country as insurance against imposition of barriers against imports.

But the Japanese are still not the leading foreign investors in the United States. That honor belongs to Britain, whose $75 billion in manufacturing and real estate holdings in the United States accounts for 30% of the total of $252 billion owned by foreigners.

The Netherlands is second, with $47 billion, or almost 20%. Japan is only third, with $33.4 billion, or 13%, although its share is increasing rapidly.

Economists draw a parallel with the petrodollar-recycling days of the 1970s, when sharply higher oil prices resulted in a massive transfer of income from the industrialized world to the oil-exporting countries. Arab governments, awash in too much cash, sought desperately for places to invest their riches.

“A lot of people were afraid then that ‘the Arabs were taking over.’ That turned out not to be true either,” says Ellen Frost, author of “For Richer, for Poorer: The New U.S.-Japan Relationship.”

But the Japanese have undoubtedly been acquiring economic influence, and political power has followed as night follows day. As the Japanese accumulate global economic leverage, says Haruhiro Fukui, a Japanese-born political scientist at UC Santa Barbara, “they feel obligated to assert a higher political profile.”

Share Defense Burden

In fact, the United States has actively encouraged Japan to play a more active role in world affairs--particularly in sharing the financial burden of Western defenses.

“If we want Japan to bear more of the burden, we are going to have to let them take on more of the responsibility,” says Romberg of the Council on Foreign Relations. “It’s unrealistic to think we’re going to be able to call the tune all the time.”

“For years, we have been urging the Japanese to speak up more and getting very chagrined when they don’t,” Frost adds. “Now, the Japanese are beginning to play a serious role, and all of a sudden, people view it as a threat.”

Tadashi Nakamae, a Tokyo-based consultant who is close to many of Japan’s current leaders, argues that Japan does not really want to push the United States aside as leader of the Western world. Nor could it, he says, even if it wanted to.

“A lot of Japanese politicians and the Foreign Ministry want to,” he says, “but the Japanese economy isn’t capable of it.”

Nakamae says Japan will probably limit its major influence to the Far East, where it will gradually take America’s place as the major market for that region’s exports. “The rest of those issues--Latin American policy, European security affairs--they are too much for Japan,” he insists.

Columbia’s Morley argues that the critical question is not whether Japan acquires more influence but “whether our interests remain similar.” For now, he says, there is no problem “because what Japan wants basically, needs basically, is the same kind of world that we do--an open trading system and peaceful transitions in politics.”

Princeton’s Calder believes the way the U.S.-Japan relationship evolves will depend largely on whether Japan remains satisfied that the United States is exercising sufficient leadership to fulfill Japanese interests.

“If the U.S. manages the world smoothly, in Japan’s interest, then there will be no big change” in relations between Japan and the United States, Calder says.

Strengthen U.S. Economy

To many analysts, the key to maintaining U.S. political power abroad is to strengthen the U.S. economy at home by reducing the budget deficit and enacting new measures to boost saving and productivity.

America’s seeming inability to tackle its economic problems head-on is costing it tremendous respect in Asian eyes, says James Abegglen, who heads the Asia Advisory Service, a Tokyo consulting firm.

“Our credibility as a country continues to diminish,” Abegglen says. “I’m not sure people in America realize how incompetent we look from a Japanese point of view in our inability to balance the budget.”

Nakamae predicts that the United States will stage an economic rebound that will restore much of the influence that Americans fear has been lost. “Already you are seeing the Rust Belt rebound as the world’s largest exporter,” he says. “People are listening to U.S. voices again.”