More is at stake in US-Japan rivalry than citrus and beef

Trade bills come and go in Washington. Disputes over computer chips, textiles, citrus, and beef sales ebb and flow in the news. But behind the headlines is a growing unease among many Americans that the United States has slipped from world economic leadership. Japan is now No. 1, says the author of a hard-hitting new book. The US isn't trying to preserve its lead anymore. It must try to catch up.

``The problem is not really a trade problem. It is much broader than that,'' says author Clyde Prestowitz Jr., a former Reagan administration trade official. ``The problem is that the United States economy as a whole is not as productive, as powerful, as competitive, as the Japanese economy - or, increasingly, as Korea, Taiwan, and Germany.''

Mr. Prestowitz sees big dangers ahead - among them: a lower standard of living for Americans, erosion of American influence, and a more dangerous, multipolar world.

``Geopolitical power, international influence, military strength are based on industrial and technological strength,'' Prestowitz said in a recent interview. ``The US will find it increasingly difficult to play the world leadership role it has played with an increasingly second-rate economy. It is very hard to be a leader when you are the world's biggest borrower.''

Prestowitz's new book, ``Trading Places: How we allowed Japan to take the lead'' (Basic Books), assails blind acceptance of free trade and the loss of US manufacturing jobs. It lays a good portion of the blame for what has happened on Americans themselves for consuming more than they produce. But it says self-criticism should be carried only so far and makes a strong case that Japan has waged an economic war to rise to dominance.

Critics may see Prestowitz's book as Japan-bashing, protectionist, or the latest pessimistic product of the new ``School of Decline'' in American writing - which also includes Paul Kennedy's ``The Rise and Fall of the Great Powers.'' Prestowitz, however, speaks Japanese, worked in Japan for a number of years, and appreciates its culture. Nevertheless, he says, Japan is now on top.

The book raises two key questions: Is it true that America has lost the lead? And does this matter?

``The [US] economic statistics look good right now,'' the author agrees. ``But the house is built on a foundation of sand. We are a capitalist society without capital. We don't have savings - we are borrowing. We are consuming 4 or 5 percent more than we are producing.''

In dozens of areas where one can actually measure it, America has lost its lead. Seven of Japan's banks are in the top 10 in the world in asset size; US banks have virtually vanished from top ranks. Japan's stock market capitalization has outstripped that of the US and is on its way to representing one-half of the total world stock market capitalization. The US is a net debtor; Japan is a net creditor. More and more US factories, land, and financial assets are being sold to the Japanese. The weak dollar and the strong yen are symbols of the relative economic strength of these two nations.

Does economic decline matter to America?

``As US power declines, there will be a more volatile international political and military situation,'' Prestowitz says. ``The world could become more dangerous.''

At home, US domestic problems such as poverty, illiteracy, and broken families will be that much harder to solve if Americans are becoming poorer. And finally, Prestowitz says, ``the ability of the US to fulfill the role it has historically played of being a beacon of hope, a land of opportunity for its own citizens and for others around the world, is going to be much more difficult.''

Japan and the fast-uniting European Community are supplanting the United States in economic leadership. With US loss of economic power follows the loss of military, political, and moral power.

The United States, at its best, tries to stand for democracy, human rights, individual freedom, and pluralism. While much of the rest of the world applauds these concepts, too, they are not quite the ideals there that they are in America. As the two wars of this century show, Japanese and European history are long on nationalism, imperialism, and racial superiority.

``As American influence wanes, it is not clear that there is any country or group of countries ready or willing to replace the United States,'' Prestowitz says. ``Certainly Japan isn't, as Japan's leaders have told me personally. In fact, the talk in Japan is how to revitalize the United States, because they don't see themselves as able to pick up that role.''

Neither Prestowitz nor other serious analysts see protectionism as the answer for the US - especially at a time when US exports are booming. But the US must get its house in order economically. Japan must change, too, they say. Japan must stimulate its own economy and import more while it boosts foreign aid and military spending. And as it buys US industry and real estate, Japan must allow more foreign ownership at home.

``The United States and Japan,'' Prestowitz writes, ``are fated to be closely linked. Our task is to find a way to integrate Japan's economy with our own and that of the world without being overwhelmed by it.''