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WASHINGTON (Kyodo) The U.S. government was worried during a spate of high-profile trade disputes with Japan in the late 1990s that escalating friction might lead Tokyo to unload its dollar assets and hurt security ties, according to a former top U.S. trade negotiator.

Charlene Barshefsky, who served as U.S. Trade Representative under then President Bill Clinton, said the jitters underscored the “perceived potential vulnerability” of the U.S. economy relying heavily on overseas money to cover its huge current-account deficit.

While facing such pressure to tone down, Barshefsky said she pursued “tough” negotiations with Japan in semiconductor, insurance and many other trade areas, believing that bilateral ties were strong enough to withstand such tactics.

She said the United States and Japan must review and adjust their policies in line with the ongoing realignment of the global economic and trade structure centered on China, the second-largest holder of U.S. Treasury securities after Japan.

The U.S. administration of President George W. Bush might be similarly concerned by China.

Barshefsky said the Treasury Department “would indicate in meetings that it would be concerned if relations between the countries became so frayed that Japan felt it should reduce its dollar holdings.”

She said: “The concern was not a deep concern by any means. But the fact that it was referenced at all is an indication of the perceived potential vulnerability of the U.S. economy to external shock.”

Barshefsky also indicated that there were hot debates in the administration over the issue of security and trade.

She said: “My mind was that the U.S. could be tough on economic issues, and should be tough on trade issues with Japan because we had a secure alliance,” she said. “Others in administrations generally reversed the logic and felt one should not be tough with Japan because we were such important allies.

“I think I was right. I always thought the strength of the alliance . . . could withstand scrutiny on the trade front.

“Maintaining strong relations was always in mind.”

Underlining the strong bilateral ties, Barshefsky said Japan was “one of the few countries who felt entirely comfortable saying to the president of the United States, ‘You do something about your budget deficit.’ ” Clinton balanced the budget, she said.

But Barshefsky said, “The diplomatic and agenda-setting role that was once unquestioning — that of Japan’s in the region — is now China’s.”

She said the world economy is now undergoing a realignment of “quite dramatic portion,” led by China.

Barshefsky urged “policymakers in Japan and in the United States to better understand the changes” to prevent them from becoming “sources of high tension and friction” and to ensure continued economic growth in the two countries.

The economic growth of China, the world’s most populous nation, increases the size of the whole pie for consumption and investment, which benefit the United States, Japan, Europe and developing nations, she said.

Barshefsky said there is a need to address the whole “complicated” picture instead of complaining about the statistical trade deficit with China, because nearly half of exports come from foreign-invested production bases and those exports simply displace the exports of the countries that have shifted production to China.

“So as much as the (U.S.) Congress might wish to complain about China . . . China and Japan are financing the U.S. economy,” she said.

Americans must increase their current “zero” savings rate and U.S. negotiators should focus on removing trade barriers to boost exports to cut the trade deficit, she said.

“Of course, the big concern is always, what happens when the financiers become tired of providing the money?” she said.

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