The Possible War on Iraq and U.S.-Japan Relations

The Bush Administration came into office saying that the Clinton Administration had focused too much on trade and that it wanted to increase the profile of Japan in the context of the alliance. Japanese were happy to hear this because this new interpretation of the US-Japan relationship would reduce conflict between the two countries. During the Clinton years, I was one of the only people with academic training on Japan advising the White House. An encouraging development has been the abundance of Japan expertise-Michael Green, Torkel Patterson and Richard Armitage for example-in the Bush Administration. But I submit that US foreign policy may be moving in a direction that you may find uncomfortable.

There is less pressure from American companies to take protective or retaliatory trade actions against Japan, steel being the exception. But this is not a surprising development if you look at the data regarding the US-Japan economic relationship. In 1986, imports from Japan to the US were 22% of the total volume; this number has fallen to 12%. Meanwhile the share of US exports to Japan has fallen too, from over 12 percent in 1990 to only 8 percent now, despite all trade negotiations. Also, American companies are finding opportunities to acquire companies in Japan. The consequence is that Japan is shrinking in significance.

Meanwhile there is a new multilateral trade round on the horizon. Of course, the round will involve Japan, but only to the extent that Japan is one of many countries in the WTO. Regarding the US-Japan trade relationship, there have been a few new issues: Trade Representative Robert Zoellick is unhappy with Japan. Zoellick believes in free trade. But he protected US steel because he thought Japan's behavior in the steel sector was reprehensible. Agriculture is another issue that will come up. You should expect more pressure to open markets from Zoellick.

On the macroeconomic front, while George W. Bush had criticized Clinton of using too much gaiatsu (foreign pressure) on Japan, the Bush team has come to realize that their idea of a strong US-Japan security partnership depends on Japan having a healthy economy. So the Bush Administration has become worried that expectations of Japan would not be met. Now that the US Departments of State and Defense are worried about Japan, Bush has begun to criticize Japan, as Clinton once did, as seen for example in September when Bush met Koizumi in New York. The US remains concerned about the Japanese economy and that things may get worse in Japan. Heizo Takenaka's new posting at the Financial Services Agency has been the one thing to create some positive feelings about Japan.

Finally, ten years of stagnation and non-performing loans has had a serious negative impact on Japan's reputation around the world. Nobody cares about Japan in Washington, DC, and it hurts because, as a Japan expert, nobody wants to talk to me.

I would like to talk about how the situation in Iraq looks from Washington, DC. Yes, Saddam is evil. He has weapons of mass destruction, weapons that have been banned by international law. He has used WMD on Iran and on the Iraqi people, invaded Kuwait, and ignored UN resolutions. As a result, Bush is determined to remove the WMDs and Saddam. War is about 70 to 80 percent likely at this point. Estimates say that about 200,000 to 250,000 soldiers will be needed, the operation would take two to three weeks, and casualties would include possibly 1,000 US soldiers and 50,000 to 100,000 Iraqis. The war would likely be fought in the cities.

Bush has vowed to go through the UN. But he seems to be a man who is going to the UN only because he was told to do so. The UN will probably go into Iraq and Bush will declare the inspections a failure and that it is therefore time to act.

There have been polls that show support for Bush's hawkish position, but the support is probably shallow and will depend on how the President proceeds. I see five objectionable elements in his approach: First, the policy of preemption may be acceptable but only if the danger is imminent and Bush has not made this case. Second, Bush is too eager to dismiss our policy of containment. I believe containment has been working well against Iraq. Third, as a part of preemption, Bush wants to get rid of Saddam; this notion of eliminating regimes is troubling. We have done it before-I am thinking of Panama's Manuel Noriega-but why not Sudan or North Korea or Iran?

Fourth, the US approach is unilateral. It is, "We will go to the UN, but you better support us because we will attack Iraq anyway." In this case, to move ahead, we can attack without UN support (we really only need support from Kuwait and Turkey), but this would damage America's reputation abroad. Fifth, Bush has not presented a conception of what the war will accomplish. The US will have to occupy, but Iraq is not ready for democracy. While the US occupation of Japan was benign, an American occupation of Iraq would prove difficult. Japan may be asked to be part of the occupation of Iraq; you may be stuck with this. If Japan opposes this idea, I would recommend that you stand up now.

Returning to US-Japan relations, Japan is now much less important in Washington, DC. This is a good thing because trade issues have faded. But the sense that Japan is important has gone way down compared with just five years ago. For example, I was in Beijing a couple of days ago and I heard the word Japan mentioned only three or four times in three days of meetings. Nobody saw the issue of abducted Japanese citizens as important enough to talk about.

I have found that policy discussions that omit Japan are becoming more frequent because Japan is not relevant to what is going on. And I find this disturbing. Japan still has the second largest economy, the third largest military, and second largest foreign assistance expenditures. Japan should matter, but I just don't hear it, even from an administration that said it was going to highlight the US-Japan alliance.

Q: The US often studies the language of its enemies and ignores the culture of its friends. The US ignores Japan, but is this the fault of Japan or the US?

Japan excited the US during the 1980s and 90s because of its success. That the US ignores Japan has to do with both countries. But, in a sense, Japan is simply becoming a normal country with low growth rates just like the others.

Q: Will there be a reverse Plaza Accord to devalue the yen? Is there any interest in this idea?

Actually, something like that would make Japan a topic again, but in a bad way. Fundamentally, there is an imbalance between Japanese investment and savings that has been going on for years. Savings has to go down, fiscal spending has to go up, or the country has to run a surplus with the rest of the world. Well, massive fiscal spending would be hard to continue. Savings tends to be difficult to adjust. So that leaves the current account. The problem is that for the current account to make a sufficient impact, Japan would need a surplus of eight percent of GDP, which is almost unheard of historically. Plus, a surplus of that size would create a political reaction in the US.

Q: The Far Eastern Economic Review says that China may export deflation to the rest of the world. Could you comment?

China will reduce the prices of some goods, but that does not imply broad deflation. And to the degree that China can reduce prices, this is good. I do believe in the theory of comparative advantage; China cannot undercut everyone on everything. China's comparative advantage remains in low-value-added products. Also, while China's exports are increasing, it does not have a large current account surplus. It has a high investment rate, soaking up savings. Imports and exports are both increasing; and this is an opportunity for Japan and the US.

Q: Do US policymakers view China as a threat?

The US does not view China as a threat as much as Japan does. Some Bush people believe that the investment going into China could hollow out Taiwan-this is wrong.

Q: China is doing whatever it can to attract investment. The opportunity in China dwarfs that in Japan.

The pace at which China has grown is staggering. There appears to be more glass and steel buildings in Beijing than in Tokyo. Traffic in Beijing looks like Tokyo. It all reminds me of Tokyo in the 1960s, the difference being that foreign direct investment was not welcome in Japan in the 1960s.

Q: How long would the war in Iraq be?

Two to three weeks is a credible estimate, based on an overwhelming force, to get rid of Saddam's regime. I am sure that the US would request that Japan help with the occupation. The war could cost as little as $50 billion, but wars are uncertain.

Q: Most Members of Congress support Bush. How can your critical opinion prevail?

It won't prevail. The presidency is a powerful tool for mobilizing public opinion. Bush has created an angry feeling about Saddam. Because elections are coming in November, the Democrats are reluctant to oppose the war, so they have chosen to focus on domestic issues rather than talk about the war. If the war or occupation became protracted, support would quickly disappear. After World War II, Congress pressed for an end to the US occupation of Japan after just four years.

Q: If 9/11 had never happened, would the US still want to attack Iraq? Why was the US attacked in the first place?

My guess is that if 9/11 had not happened, we would not be talking about Iraq because there would not be the same feeling of vulnerability in the US. You have radical people in the Middle East that want to lash out. The US was just a convenient target.

Q: What would the US do if Japan opposed the attack?

There is safety in numbers. Germany suffered because it was only one of a small few to criticize the US.

Q: Could a coup fell Saddam?

It is possible that some of Saddam's military will turn against him. This seems unlikely, though, because we will be going after the dedicated troops that were withdrawn from the Kuwaiti front and were heavily indoctrinated. I have heard that Saudi Arabia does not even want Saddam removed because he holds Iraq together and suppresses religious fundamentalists. Another unknown is what Israel would do if it were attacked.

Q: Is there a long tradition of unilateralism in the US?

The US understands that it is not best to whack someone without getting a coalition first. The first Bush got a coalition. Perhaps because Clinton moved forward cooperation in foreign policy, the second Bush appears so different. The Bush Administration has been trying to reverse what the Clinton Administration did in both foreign and domestic policy.

Q: Is the US entering a period of Japanese style deflation?

Economists are not worried about a Japanese style deflation in the US. Most of the worrying is in the media. The US does not have the underlying problem of insufficient demand.

Q: Will the US try to remove Kim Jong Il?

No. Removing the Iraqi military is a much easier job. North Korea has had 50 years to dig in the mountains. Casualties would be far higher in an attack on North Korea.