The talks finally ended last week as something totally unexpected: a success, at least according to the participants. After an 11th-hour phone call from Japan’s Prime Minister Toshiki Kaifu to President George Bush helped smooth the way toward agreement, the two sides issued a 38-page report committing each to structural reform of its economy. The agreement allows the Big Two to go to next week’s economic summit in Houston having–for the moment, anyway–put irritating disputes behind them. Now, they believe, the summit can address more pressing matters, such as financing the reconstruction of Eastern Europe. “Continuing success on SII,” Bush said late last week, “allows us to move away from trade disputes and focus our efforts on more positive activities.”
Yet for all the words of conciliation, SII skeptics on both sides still had two awkward questions. Would both sides actually carry out the reforms? And when might the $49 billion trade imbalance between the two countries finally shrink?
The skepticism is not without foundation. Tokyo accused the United States of consuming too much and investing too little, so the Bush administration pledged to increase savings and investment, reduce the budget deficit and improve the American educational system. All are obviously worthwhile goals, but none exactly come with the wave of a wand. Administration insiders pointed to the president’s admission last week that more “tax revenue” was needed to close the budget gap as evidence that Washington will address Japan’s concerns seriously. “I’m doing my part; we’re trying very hard,” a senior administration official quoted Bush as telling Kaifu on the phone last week. Tokyo will watch the budget talks in coming weeks very carefully to gauge just how serious Bush is.
The Japanese also made numerous–and unusually specific–promises. Tokyo said it would spend more than $2 trillion on public-works projects in the next 10 years. Japan also said it would enforce antimonopoly laws more aggressively, reduce restrictions on opening large retail stores in Japan and monitor more closely the insular purchasing practices of Japan’s giant industrial groups, the so-called keiretsu.
Not comforting: If carried out, all those steps could help lower prices a bit in Japan. Whether the agreements help U.S. exporters is another question. Predictably, trade hawks like Democratic Sen. Lloyd Bentsen had their doubts. “The worth of that agreement can only be measured by hard trade results,” he said. U.S. negotiator insisted that increased public spending would stimulate overall consumption in Japan, thus boosting imports. They also insisted that Tokyo’s concessions would make the Japanese market more open to foreign products.
John Taylor, a member of Bush’s Council of Economic Advisers and an SII negotiator, conceded that it would probably take at least three to five years for results to trickle in. With some economists now fearing that the trade imbalance between the two countries could start growing again this year, that was hardly a comforting thought. Even with last week’s “agreement,” as Democratic Sen. Max Baucus pointed out, “our trade disputes are likely to continue for many years.” Anyone for SII II?
