HEADING FOR A CRASH

By John Greenwald

Trade conflicts between the U.S. and Japan normally follow a practiced ritual: first come the angry words, then the threat of sanctions, then more angry words, then the small gesture of reconciliation. But it seemed last week as if that ultimate stage might never be reached when the Clinton Administration slapped 100% tariffs on 13 Japanese luxury cars in the toughest trade showdown between the two countries in two decades. In unveiling the sanctions, which would double the sticker price of such models as Lexus and Acura when they take effect on June 28, Trade Representative Mickey Kantor declared that the U.S. would no longer "stand by and watch its workers and its products unfairly treated" by Japanese trade barriers to American autos and auto parts.

Japan refused to back down. Trade Minister Ryutaro Hashimoto, who once called Kantor "even more aggressive than my wife when I come home drunk," promptly lodged a complaint with the World Trade Organization in Geneva demanding that the tariffs be thrown out. Not to be outdone, the U.S. plans to ask the organization to rule that Japan's entire method of conducting trade is unfair.

Kantor's goal in this fight is to pry open the Japanese market for American-made auto parts -- everything from axles to mufflers to spark plugs. The U.S. claims that Japanese protectionism is evident from the fact that Japan has a 37% share of the U.S. parts market while American parts, which are of comparable quality, account for just 1.2% of the business in Japan. Hashimoto counters that it is not up to government officials to tell Japanese companies what products to buy and that any attempt to do so would violate free-trade principles.

Beyond the hot rhetoric, political pressures in both countries threatened to bar any immediate settlement. For a struggling President Clinton, the get-tough sanctions promised to shore up his support in crucial industrial states such as Michigan and Ohio. "No U.S. politician ever lost at the polls by bashing Japan," says trade expert Jagdish Bhagwati, a Columbia University economist. And the political price? "So we lose the Lexus and Infiniti vote," shrugs a senior Administration official. "It's a risk we're prepared to take."

In Japan, Hashimoto's hard line has played well, and his ambition to become Prime Minister could elude him if he appears to back down now. At the same time, his Liberal Democratic Party, which had governed Japan for some 45 years but is now only the largest faction in a coalition government, may no longer have the backroom clout to bring the country's powerful bureaucrats into a compromise that would avert a trade war.

Not surprisingly, U.S. automakers and many other large companies savored the Clinton Administration's moves. "The focus is on auto parts, but to a certain extent we all have the same problems with Japan," Robert Allen, chairman and chief executive officer of AT&T, observed two weeks ago. Amid the growing bellicosity, Eastman Kodak last week filed a complaint with Kantor's office that accused Japan and Fuji Photo Film of blocking Kodak's access to the Japanese market.

All the bravado worried many other companies who feared that their business with Japan could be lost in a trade brawl. "The Clinton Administration is really playing with fire," warns Lee Richardson, director of Asia/Pacific operations for SAS Institute, a North Carolina software company that exported $22 million worth of products to Japan last year. "In trying to take care of the U.S. auto industry, they could end up souring trade relations for everyone else."

No one was more outraged than U.S. dealers of Japanese luxury cars, even though some saw a jump in sales last week as customers rushed to buy autos already on their lots. (The tariffs cover imports that reach the U.S. after Friday, May 19. The duties will be collected retroactively on those cars once the sanctions officially take effect on June 28.) "I used to say I've suffered through floods, fires, riots and earthquakes, and the only thing I'm waiting for is locusts," says Michael Sullivan, who runs a Lexus dealership in Santa Monica, California. "But instead of locusts, I got Mickey Kantor."

The situation was particularly painful for Nissan, which rolled out its $30,000 Infiniti I30 model in April, backed by an estimated $40 million ad campaign, only to have the car wind up on Kantor's list."The I30 was our weapon to revitalize the Infiniti [distribution] channel," sighs executive vice president Yoshikazu Kawana."It's very unfortunate that we just launched it."

For now, Kantor says, "the ball is in Japan's court." Talks could resume when Kantor and Hashimoto meet this week at a gathering of trade ministers in Paris, or when Clinton and Japanese Prime Minister Tomiichi Murayama attend an economic summit next month in Halifax, Nova Scotia. By then maybe the old rhythms of U.S.-Japan trade disputes will have kicked in again and the two sides will reach for a face-saving denouement.

--Reported by Edward W. Desmond/Tokyo and Adam Zagorin/ Washington, with other bureaus

With reporting by EDWARDS W. DESMOND/TOKYO AND ADAM ZAGORIN/ WASHINGTON, WITH OTHER BUREAUS