Surprise! Just hours before a sanctions deadline that would have priced Japanese cars out of the U.S. market, Tokyo and Washington reached an agreement to open Japan to more American autos and auto parts.
Actually, despite the rhetoric and threats, there was little chance that Japan would have refused to deal. The cost would have been far too high - the loss of $6 billion in sales of Japanese luxury cars.That's not a financial hit the Japanese would have been willing to take, especially with their current economic troubles. Such a trade war would have further weakened the dollar against the yen. Instead, after the agreement was announced, the value of the dollar rose on foreign money markets.
While the trade pact was welcome, it once again demonstrated the Japanese penchant for brinkmanship and the refusal to give ground in trade talks until being forced into taking grudging action at the last minute.
The tough American approach and threat of sanctions had been criticized in some quarters, since a trade war would not be in anybody's benefit. A number of countries worried that sanctions might undermine the new World Trade Organization.
As a frustrated President Clinton noted, the United States has tried to penetrate the Japanese market for several decades without success. Of course, some of the blame must be laid at the door of U.S. automakers. Their cars often are too large for congested Japanese streets, and the steering wheel is on the "wrong" side. In Japan, as in Britain, motorists drive on the left of the road, and the steering wheel is on the right side of the dashboard.
If Detroit wants to do better in Japan, the automakers should make the adjustments to deal with that market. Other manufacturers, in Germany for example, are successful in Japan because they tailor their autos to meet the needs of the Japanese market.
Yet there is no doubt that Japan has - as in so many other instances - conspired to keep its domestic auto market closed to American products. Otherwise, Japanese officials would hardly be in position to open their internal markets to more American cars and parts.
For example, only 2.6 percent of auto parts bought in Japan are foreign made, compared to 32.5 percent in the United States, despite the fact that U.S. parts sometimes can be had at a cheaper price.
The driving force behind the hard Washington approach clearly is the $66 billion-a-year trade deficit with Japan - about half of it due to automotive sales. Efforts to shrink that disparity have not been successful in the past.
The chief concern now is making sure the agreement translates into real penetration of the Japanese market. That has not always happened after previous trade "understandings."
However, Clinton says the trade pact will have an impact, raising the sale of U.S. auto parts in Japan by $9 billion over three years. Japan also will construct more auto plants in the United States. In addition, some 1,000 more Japanese auto dealers will begin offering American cars in their showrooms.
Those are helpful steps, but the burden really rests on Detroit to prove it can compete in Japan. No trade deal can force Japanese to buy American cars if the quality of U.S. cars can't match or exceed the domestic Japanese product.