Give the credit to Kantor, the president’s much-maligned trade czar. After two years as chief U.S. trade negotiator, Clinton’s former campaign manager has finally hit his stride. The overblown rhetoric of his early months, when Kantor’s constant attacks on alleged foreign unfairness won him a reputation for empty threats, has calmed. Kantor has managed to reposition himself as a decisive strategist, not just a big talker. In February he signed an unprecedented pact with China to counter illegal copying of U.S. movies, music and software. Now he has taken an unusually hard–and potentially risky–line with Japan. “His ideas really haven’t changed since he got there,” says a top aide. “He’s just grown more comfortable dealing with trade.”
As far as actual imports and exports go, that may not make much difference. But Kantor’s offensive leaves Clinton in precisely the right position, visibly committed to economic openness–he has stood up for free trade with Mexico and for last year’s global-trade pact–while at the same time standing ready to man the barricades against foreign unfairness. Sanctioning Japan, says Washington pollster Mark Mellman. “helps fill out the image era president who stands up for what he believes in.”
Kantor, a Los Angeles lawyer, was a novice when he became trade representative in 1993. The post itself was a consolation prize; he had wanted to be White House chid of staff, but was blocked by Clinton aides who felt Kantor had slighted them during the campaign. Knowing little of the niceties of trade policy, Kantor was convinced that a tougher, more “realistic” approach to negotiations would fix problems his predecessors couldn’t solve. It didn’t. His seeming insistence on winning every bargaining point antagonized trading partners, and bad political calls turned the U.S.-Mexico-Canada free-trade pact from a sure thing into a near casualty. Two years of experience may not have mellowed Kantor, but they have shown him the limits of trade policy–and how to wield it to best effect.
The auto sanctions offer a taste of the new Kantor style. Cars and car parts account for most of the huge U.S. trade deficit with Japan. Years of bargaining have slowly pushed back Japan’s barriers to foreign cars. But although Detroit’s Big Three now have showrooms in Japan and companies like Nissan and Toyota are buying more American-made parts, the U.S. share of Japan’s market has remained tiny. That’s not a front-burner issue for the U.S. industry, which has bigger fish to fry in emerging markets like China and Indonesia. But Kantor sensed that Japan is uniquely vulnerable on the ear front: at 87 yen to the dollar, it’s hard for Tokyo to argue that American mufflers aren’t dirt-cheap. Washington wants not only looser regulations but also a commitment to more imports. The Japanese offered to ease up on the inspections of imported cars, but rejected import targets. Kantor threatened sanctions – only this time he acted, After weighing such unorthodox options as a tit-for-tat inspection of every incoming Japanese car, Kantor slapped 100 percent tariffs on 18 luxury models, shocking importers by making the higher tariffs effective right away.
As usual, there’s less to the sanctions than meets the eye. Although Toyota’s Lexus and Nissan’s Infiniti would become impossibly expensive, the strong yen has already crimped sales of most of the cars Washington is targeting. One of the two Hondas on the list, the Acura 3.2 TL, isn’t even on the U.S. market–and its readily available sister car, the Acura 2.5 TL, isn’t affected by the sanctions. But by picking targets carefully, Kantor may have found a way of punishing Japan’s carmakers at little cost to the United States. The standard economic analysis–higher tariffs lead to higher prices–may not apply, because competition from Europe could keep U.S. manufacturers from hiking prices. “Most of the consumers who are turned off by tariffs on luxury cars are going to gravitate to European cars,” predicts auto-market analyst Susan Jacobs. “I don’t think the Big Three are going to notice much of an effect.”
Kantor’s aggressive move is not without risks. Japan, sources say, has hinted that it will retaliate by encouraging its airlines to favor the European Airbus over Boeing’s American-made jets. More broadly, U.S. diplomats worry that too much pressure on trade will make Japan less willing to support U.S. initiatives with China and North Korea. And the backwash from the auto case threatens to swamp the fledgling World Trade Organization. Already, Japan has complained that the U.S. actions flout WTO rifles, and Washington will fire back with a complaint against Japan’s car-import restraints. Neither side wants to be censured, and the WTO is desperate to avoid antagonizing its two largest members. But if the United States and Japan don’t settle, trade experts say, it’s likely that the WTO will condemn the U.S. sanctions. Even if Washington were to win its case against Japan’s import barriers, the Japanese could claim victory, too. “I would have waited on sanctions,” says veteran U.S. negotiator Julius Katz. “I’d like to have a conviction before there’s an execution.” Agrees Michael Smith, a top Bush administration trade official, “It’s clear that the sanctions they’re imposing are just illegal.”
How will the impasse end? In the past, U.S. threats have spurred Japanese politicians to demand that their powerful bureaucrats change course. The same calculation is at work here: Japanese Prime Minister Tomiichi Murayama may want a deal before the June 15 summit of wealthy nations in Canada. But Murayama, who is openly despised by Japanese trade negotiators, may be too weak to force a settlement on his own government. Trade and Industry Minister Ryutaro Hashimoto, Kantor’s negotiating partner, is on the short-list of potential successors. With an election looming later this year, Hashimoto may find suing for peace unattractive. Says Brookings Institution political scientist Michael Mochizuki, “There’s very little incentive for Mr. Hashimoto to intervene in such a fashion, because it’s become politically very attractive to say no to the U.S.” That leaves Washington hoping that Japan’s carmakers will scream loud enough to change Hashimoto’s mind. And if they don’t? Now that Kantor has thrown a few punches on the dance-hall floor, he may be in no hurry to go back to the tango.
Sanctions against Tokyo would increase significantly the price of some Japanese luxury cars in the U.S. market. Here are some of the American and European models that stand to profit from the trade dispute.
LOSER Lexus LS400 $51,680 right arrow $88,000 WINNER BMW 740i$57,9000
Buyers looking for the prestige of top luxury models will turn to Europeans cars like the BMW and Mercedes.
LOSERS Nissan Infinit Q45 $52,850 right arrow $89,000 WINNERS Jaguar XJ6$53,450
Jaguar’s XJ6, whose sales were up 19 percent in 1994 under new owner Ford, may gain even more momentum.
LOSER Lexus SC300 $41,380 right arrow $70,000 WINNERS Cadillac Seville$41,935
Technology-loaded models like the Seville may get a boost in sales without the competing Lexus.
LOSER Lexus ES300 $31,980 right arrow $54,000 WINNER Lincoln Mark VIII$38,800
Lexus’s cheapest and best-selling model would be undercut by American-made luxury cars like the Mark VIII.
LOSER Acura Legend $67,000 right arrow $62,900 WINNER Oldsmobile Aurora$31,370
The Legend is among the top sellers on the list of 13. Sports-sedan buyers may turn to models like the Aurora.
LOSER Mazda Millenia $26,43 right arrow $4,000 WINNER Buick Riviera$27,632
Mazda’s new hit Millenia, with 24,000 cars sold in ‘94, could be fatally hurt before its second birthday.
right arrow = ESTIMATED INCREASE UNDER HIGHER TARIFFS. ESTIMATES ARE BASED ON 70 PERCENT OF THE CURRENT RETAIL PRICE. SOURCE: BILL DIEM, AUTOMOTIVE NEWS. RESEARCHED: BRAD STONE
