Bush Turns to Trade

President is focusing on building ties with Mexico, opening markets in Japan

THIS week, President Bush is turning his strongest asset - his personal diplomacy - to the Pacific Basin and his effort to liberalize world trade. His summit meetings with Japanese Prime Minister Toshiki Kaifu yesterday in Newport Beach, Calif., and Mexican President Carlos Salinas de Gortari in Houston on Sunday represent two prime fronts for his free-trade battle.

On both fronts, Mr. Bush is at odds with American organized labor in one of the few areas where some Democrats see a potential elections issue that cuts in their favor - economic nationalism.

So far, most developments have been running in Bush's favor.

In his effort to open Japanese markets to Americans imports, the Bush administration can show some steady, if not dramatic, progress.

The overall American trade deficit has dropped $118.5 billion in 1988 to $101 billion last year, and the drop nearly doubles when inflation is factored in.

The trade deficit with Japan dropped from a high of $56.3 billion in 1987 to $41 billion last year.

The improvement is largely due to growing American exports to Japan.

In the Japanese semiconductor market, for example, the share of United States imports has expanded from 8 percent to 13.5 percent since 1986.

Not all American industries have shown even that much progress in Japan.

The Bush administration is particularly working on opening up the construction and rice markets.

The rice market has the larger importance of promoting free trade in the world.

An agreement would help break the deadlock the United States faces in Europe as well as open up agriculture markets to American competition. Agriculture, in turn, brought about the collapse a couple months ago of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations.

But foreign rice is an emotional issue in Japan. Any concessions are highly unlikely before elections a couple days away, notes a State Department official.

In Mexico, the Bush effort to create a free-trade agreement that could eventually cover both American continents is probably years away from making any significant impact on the US economy.

``I can't see great benefits any time soon,'' says Robert Lawrence, a senior fellow at the Brookings Institution. ``Over the medium term, this could be a big deal.''

The importance of negotiations with Mexico is that a permanent free-trade structure is being built to develop competitive enterprise in Latin economies that are among the most closed in the world.

Building trade ties in the Americas serve political concerns as much as economic by fostering what the administration sees as healthy trends toward democracy and free markets in Latin America.

It also serves as a long-term economic defense. If free-trade regimes collapse, then regional trading blocs may provide alternative markets. Europe has already formed one. Economic ties between Asian countries are deepening.

In the Americas, says Dr. Lawrence, ``we are where the Europeans were in 1958.''

Organized labor is opposed to a free-trade agreement with Mexico, and labor's doubts have found some sympathetic ears in Congress.

The AFL-CIO is concerned that massive numbers of American jobs will flee into Mexico. Spokesmen cite the twin-plant system that allows American goods to cross into Mexico for assembly and return duty-free. Nearly half a million Mexicans are now employed in such plants by American companies.

House majority leader Richard Gephardt, who has been a leading critic of foreign trade practices, says he will insist on safeguards against unfair competition or job flight before supporting the fast-track negotiating authority that the Bush administration seeks.

Auto workers have similar concerns about trade with Japan. Both the United Automobile Workers and Chrysler chairman Lee Iacocca are lobbying for import limits and minimum local-content standards for cars with Japanese nameplates.

American resentment and ambivalence toward the Japanese has not abated as much as might be expected from declining trade deficits.

In a Chicago Council on Foreign Relations survey taken late last fall, Americans rated Japanese economic power far ahead of economic or military challenges from Europe, the Soviet Union, or China as a critical threat to the US.

By most surveys, American hostility toward Japan has increased slightly since the middle 1980s.

Whether a rise of what political analyst Kevin Phillips calls economic nationalism favors Democrats against free-trading Republicans depends largely on unemployment, according to Republican consultant Eddy Mahe.

``If unemployment is high, then I think the issue would cut,'' he says. ``Otherwise, no.''

Mr. Phillips says that Americans have grown beyond the trade issue itself to concerns over foreign investment and leverage over US credit markets.

He still sees a Bush trade policy more attuned to the concerns of corporate executives than factory workers, however. ``George Bush approaches trade issues as somebody whose heart is in Greenwich, Conn.,'' he says.