America's Trade Policy Towards Japan

Demanding Results

John Kunkel

• Publisher: Routledge
• Year: 2003
• Print ISBN: 9780415298322, 9780415298322
• eBook ISBN: 9781134427949
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

In a few years, the United States has gone from worrying about Japan's economic might to worrying about its meltdown. The rise and fall of America's 'results-oriented' trade policy towards Japan captures this turnaround.
John Kunkel traces this Japan policy to a crisis in the institutions, laws and norms of the US trade policy regime in the first half of the 1980s. This arose from the erosion of America's post-war international economic dominance (especially vis-à-vis Japan) and the unintended consequences of Reaganomics. The crisis in turn led to the progressive ascendancy of a coalition of 'hardliners' over 'free traders' after 1985.
Kunkel combines research in economics, politics and history - including interviews with key policy-makers - to illuminate this important case study of American trade policy. His book offers theoretical insights and practical lessons on the forces shaping US trade policy at the start of the twenty-first century.

1 Introduction

The contrast could not have been starker. Visiting Tokyo in February 2002, President George W. Bush went out of his way to talk up Japan and its Prime Minister, Junichiro Koizumi, a leader struggling to turn around an economic giant slipping in global power and status.

Ten years earlier, it was the visit to Japan by Mr Bush’s father, former President George H.W. Bush, which seemed to capture the twilight of the American century set against a Japanese rising sun. Bush (the elder) had crossed the Pacific seeking high-profile trade deals for US industries. To some, his collapse at a state dinner in January 1992 into the arms of the Japanese Prime Minister, Kiichi Miyazawa, appeared to symbolise the passing of one world order and the emergence of another.

Clearly, the ground beneath US–Japan relations has shifted dramatically since the early 1990s. Not so long ago many Americans contemplated with anxiety and some resentment Japan’s inexorable rise towards economic supremacy. Now, a mighty Uncle Sam worries about a Japanese meltdown. Nowhere is this transformation more apparent than in US trade policy. American complaints about access to the Japanese market generated a permanent air of crisis in US–Japan relations for almost two decades. Especially contentious was America’s embrace of a ‘results-oriented’ Japan policy – demanding quantitative indicators of market access gains in bilateral agreements.

Beginning in the mid- 1980s,both Ronald Reagan and George H.W. Bush pursued a selective, results-oriented Japan policy. Bill Clinton went further in the 1990s, putting demands for quantitative targets in the Japanese market at the centre of US trade policy. But this policy was abandoned by Clinton’s second term in office. And George W. Bush has shown little appetite for ‘Japan bashing’. This book traces the rise and fall of America’s results-oriented market access policy towards Japan.

This policy was a striking departure from America’s commitment to multilateral, ‘process-oriented’ trade negotiations. After the Second World War, the United States was instrumental in establishing a multilateral trading system under the General Agreement on Tariffs and Trade (GATT); albeit with qualifications and exceptions. But in time the view that Japan was ‘different’ from other trading partners – requiring a unique policy approach – would become conventional wisdom in American trade policy circles. Former United States Trade Representative (USTR) Charlene Barshefsky put it succinctly at a forum marking the fiftieth anniversary of the GATT in 1998. While praising the achievements of the multilateral system, she singled out for criticism countries that had changed the letter of laws reducing trade barriers through successive rounds of the GATT, but ‘did not meet the spirit of their goals. Markets remain largely closed, opaque and driven more by informal cliques than by laws, rules and contracts. Japan is a classic case in point’.¹

Needless to say, not everyone saw America’s ‘Japan problem’ the same way. Some analysts identified aggressive attempts by the United States to prise open the Japanese market as the main threat to the international trading system (Bhagwati 1990). International relations scholar John Ruggie has identified America’s results-oriented Japan policy as the most serious historical deviation from the ‘embedded liberalism’ of the multilateral system – a violation of ‘both the spirit and letter of post-war norms’ (Ruggie 1996: 133).²

How did the United States come to embrace demands for quantitative targets in the Japanese market? And what accounts for the demise of this policy by the mid-1990s?

Theorising at the interface of state and society

Answering these questions involves explaining the content and timing of change in US trade policy. Alternative theories locate the primary determinants of trade policies at different ‘levels-of-analysis’.³ Systemic or international-level approaches grant theoretical primacy to such factors as the distribution of global political-military power, the international economic structure, or shared norms and information embodied in international institutions. Domestic-level approaches emphasise such variables as the economic interests of societal actors, domestic political structures and coalitions, and/or the prevailing ideologies and beliefs of central decision-makers.

Any theory needs to balance the dual demands of parsimony and explanatory power. In their quest for parsimony, some scholars accord a privileged status to system-centred models. Keohane (1984: 16), for example, has argued that systemic analysis should be the theoretical first-cut because ‘without a conception of the common external problems, pressures and challenges [facing states] we lack an analytical basis for identifying the role played by domestic interests’. This ‘top-down’ system-first proposition is, however, unconvincing in isolation from a specific research question. More careful systemic theorists have drawn a distinction between structural ‘theories of international relations’ (the behaviour of aggregations of states) and ‘theories of foreign policy’ (the behaviour of individual states) (Waltz 1979). The case for some measure of theoretical pluralism as opposed to grand theoretical templates is a strong one.

Realism and other parsimonious, system-centred approaches see US trade policy as shaped primarily by international-level variables. Domestic political factors provide no more than secondary sources of explanation. Realist scholars, for example, stress ever-present threats to state survival and focus on the configuration of state power in the international system as the primary determinant of policy behaviour. But, as will be argued in Chapter 2, systemic approaches are plagued by empirical anomalies and a degree of indeterminacy that make them poor starting points for explaining historically significant changes in US trade policy.

What about more ‘bottom-up’ theories centred on domestic politics? The most common such approach links US trade policy to the demands of interest groups in society. But models that focus narrowly on interest-group pressures also run into theoretical and empirical problems. The next chapter argues that this is mainly because the supply-side of the policy process – that is, the state – is treated as little more than a filter for the material demands of societal groups.

This book directs its theoretical attention at the interface of state–society relations – at the institutions, norms and groups that cross-cut the distinction between ‘state’ and ‘society’. This state–society approach traces the rise and fall of America’s results-oriented market access policy towards Japan through the twin lenses of the American trade policy regime and the key domestic advocacy coalitions contesting Japan policy.

This approach begins from the premise that state preferences – an ordering among fundamental purposes underlying the strategic calculations of governments – are causally significant. This boils down to an assumption that what states want is the primary determinant of what they do, with preferences determining the nature and intensity of the game that states are playing.⁴ A state–society approach makes theorising about the process of domestic preference formation of first-order significance (Moravcsik 1997). It focuses on the consequences for US trade policy of shifts in preferences grounded in the institutions, norms and groups of American state–society relations. This contrasts markedly with systemic approaches where the goals of unitary, rational states are assumed fixed or determined exogenously by the geo-political environment.

A focus on the policy regime as the appropriate prism for exploring domestic preference formation is the second key feature of this approach. The domestic policy regime is defined as the enduring institutions, laws and shared norms mediating state–society relations in a given issue-area. Putting the regime at the centre of the analysis emphasises how individuals and groups make choices in an environment that has established institutions and norms of action. Institutional variables shape not only which domestic groups gain access to the policy process, but even the way such groups define their goals. Attention to the structuring and enabling role of institutional factors marks out this approach from society-centred trade policy models, which ignore or downplay the transformative role of the state in the process of preference formation. The policy regime provides a vantage-point for identifying the broad determinants of change in US trade policy towards Japan in a state–society approach; though institutional factors are not the main ‘cause’ of policy.

While the policy regime structures domestic trade politics, actors constantly seek to control or reformulate the rules of the game, to claim the authority and resources of institutions, and to persuade centres of policy-making of the merits of their ideas and policies. Tracing the political contest between advocacy coalitions – sub-regime groups that interpret policy problems and propose policy responses – allows for a more fine-grained explanation of US policy innovations. Bringing in advocacy coalitions permits a (limited) role for shared beliefs or ideas in explaining policy change.⁵ Probing the fit between politics and ideas illuminates how policy boundaries are conceived, set and crossed. Non-cognitive factors – international structural changes, macroeconomic shocks or changes in broad governing coalitions – may well be the primary drivers of policy. But scope exists for changing beliefs about a policy problem – that is, policy-oriented learning – to leave an imprint on outcomes.

It is important to make the point that a theoretical focus on American state–society relations does not imply that policy can be explained simply by domestic politics. The state–society approach remains open to international-level variables helping to shape the broad contours of US trade policy. What it does argue is that a theoretical grounding in domestic politics helps in understanding when and how change in the international environment matters. A number of scholars have identified the need for more contingent analysis in international politics – integrating variables from different levels-of-analysis often treated as mutually exclusive sources of explanation and identifying the conditions under which particular variables are causally significant (Cohen 1990; Odell 1990; Haggard 1991; Ikenberry 1996). In this context, a case study of policy change over time can be more than mere ‘storytelling’, even though scope for theoretical generalisation is constrained (Lijphart 1971; Eckstein 1975; Skocpol and Somers 1980). The value comes from combining comparison and an appreciation of historical context with a close analysis of the unfolding events within the case (George and McKeown 1985; Collier 1993).

As will become clear, this book draws on a number of research programmes. The theoretical core owes much to the ‘nonideological and nonutopian’ liberal theory of Moravcsik (1997), with its emphasis on domestic policy preferences grounded in state–society relations. However, this study places greater emphasis on the independent causal weight of institutions and state actors and less on the ‘capture’ of the state by societal groups. In this way, the state–society approach draws heavily on the ‘historical institutionalist’ school of politics (Thelen and Steinmo1992). The importance of institutions, the contingent nature of politics and a role for ‘path dependence’ merge in a framework where history matters; where decisions ‘at one point in time can restrict future possibilities by sending policy off on particular tracks, along which ideas and interests develop and institutions and strategies adapt’ (Weir 1992: 192). Still, policy-makers have choices to make. Incorporating advocacy coalitions into the state–society approach addresses issues of political agency and choice with a role for shared beliefs in the policy process (Sabatier and Jenkins-Smith 1993).

The argument in brief

America’s results-oriented market access policy towards Japan can be traced to a crisis in the institutions, laws and norms of American trade policy in the first half of the 1980s. This regime crisis was the ‘conditioning variable’ leading to a more aggressive US bilateral market access policy after 1985, with Japan as the main target. A more complete picture of the rise of a results-oriented Japan policy comes from tracing the ascendancy of ‘hardliners’ over ‘free traders’ in the American trade policy community.

Following the Reciprocal Trade Agreements Act (RTAA) of 1934, the American trade policy regime rested on a set of institutions, laws and norms which saw the US Congress cede primacy in trade policy to the executive branch. Under this ‘1934 regime’, the executive branch used this authority to promote multilateral ‘export politics’ (Destler 1995). Executive branch primacy in trade policy after the Second World War saw American preferences defined largely in terms of process-oriented, multilateral trade negotiations. Reciprocal liberalisation of trade barriers was negotiated through the GATT, with Congress largely shielded from the sort of protectionist demands that had led to sharply higher US protection at the start of the 1930s.

As outlined in Chapter 3, the 1934 regime suffered a crisis of legitimacy in the first half of the 1980s from a combination of international and domestic factors. The erosion of the (artificial) dominance of the American economy in the postwar period was one source of this crisis. Expansion of Japanese production, export and technological capabilities was at the leading edge of these systemic pressures. Greater policy interdependence also arose from the emergence of new sources of international capital with Japan again at the forefront. Change in America’s relative position in the international economy, especially vis-à-vis Japan, provides an important but permissive international context when it comes to explaining the rise of a results-oriented Japan policy.

Domestic factors – in particular the macroeconomic policy decisions of the first Reagan Administration – were critical to the nature, timing and intensity of the regime crisis. A sharp fall in American national savings and a sustained rise in the US dollar followed a marked loosening in fiscal policy in the early 1980s. The impact on the competitive position of America’s traded goods sector was apparent in sharply higher US trade deficits following the recession of 1981–2. Acute pressure on the American traded goods sector underpinned both increased US protection and the shift by the second Reagan Administration in September 1985 towards a more aggressive bilateral market opening policy using Section 301 of the US Trade Act. The proximate cause of this shift in trade strategy was the credible threat by Congress to enact restrictive trade legislation and to limit substantially the trade policy discretion of the executive branch. The scale of its competitive challenge to US industry and the size of the bilateral trade imbalance helped ensure that Japan would be the primary target of America’s new ‘aggressive bilateralism’.

Chapter 4 looks beneath the regime crisis at how the political contest between two advocacy coalitions influenced policy reactions to America’s Japan problem. The post-war US trade strategy of process-oriented multilateralism embodied the power and preferences of a ‘Free Trade–Good Relations’ coalition (free traders). The trade regime crisis would leave this coalition fragmented and reactive to an emergent ‘Hardline–Japan is Different’ coalition (hardliners). For the most part, free traders (concentrated at high levels of the executive branch, the national security policy community and among the ranks of professional economists) tended to view the stakes surrounding the Japan problem as relatively low. By contrast, hardliners (notably in Congress, the US traded goods sector and among manufacturing-oriented policy analysts) saw the stakes as high and requiring significant policy change by the United States.

Prior to the regime crisis, the free traders kept the hardliners in check. The September 1985 shift by the second Reagan Administration towards aggressive bilateralism ushered in a policy setting more favourable to the hardliners. The Market-Oriented, Sector Selective (MOSS) talks begun in 1985 illustrate the transition by the second Reagan Administration towards a more structured and aggressive approach to the Japan problem. The result was a stronger emphasis on formal bilateral trade agreements and a wider network of US government actors claiming a stake in securing market access results.

The hardliners achieved their most dramatic policy breakthrough with a bilateral agreement over semiconductor trade in 1986, including a 20 per cent market share target for foreign sales in the Japanese market. This agreement explored in Chapter 5 would form part of a selective, results-oriented policy that characterised President Reagan’s second term and the administration of George H.W. Bush. Chapter 6 highlights how bilateral arrangements in such sectors as auto parts, telecommunications, supercomputer and computer procurement, glass and paper products also displayed results-oriented characteristics.

In the second half of the 1980s, a broad advance by the hardliners in the American trade policy community provided the backdrop to this policy evolution. As outlined in Chapter 7, a Congress intent on reclaiming an action-forcing role in US trade policy and internationally oriented American firms with more concerted demands for a results-oriented Japan policy were key actors in this context. In addition, the emergence of the so-called ‘revisionists’ as an ideas-based network helped to codify a hardline paradigm surrounding Japan’s allegedly different form of capitalism. These ideas found fertile soil in the decline of Cold War tensions and increasingly hostile American elite opinion towards Japan. As Chapter 8 illustrates, the idea that Japan was different (at least in terms of its international openness) also gained new credibility from within the ranks of professional economists – traditional bastions of free trade advocacy. From 1989, the Bush Administration’s Structural Impediments Initiative (SII) incorporated aspects of this learning experience in a process-oriented policy innovation.

Demands for quantitative targets in market access agreements with Japan assumed a higher priority in US policy following the election of Bill Clinton in November 1992. Examined in Chapter 9, the Clinton Administra...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Preface
• Abbreviations
• 1 Introduction
• 2 Explaining US trade policy
• 3 An American trade policy regime crisis
• 4 Hardliners versus free traders
• 5 The semiconductor agreement
• 6 Reagan, Bush and selective demands for results
• 7 The hardliners advance
• 8 Free traders and Japan’s ‘structural impediments’
• 9 The revisionist moment with a hardliner-in-chief
• 10 The eclipse of the Japan problem
• Notes
• References