INFORMATION SH - Ambassador Armacost TO FROM INR C Thomas Thorns Jr Actin Growing-Entanglement of usedagan Trade Issues - f SUBJECT While Japanese leaders eschew any direct link between 2 1 trade and defense issues in their contacts with the us g QJJ frustxation eJer the negaJ ise J5 reaatien tQ- h wmsj regards aJ-theneivg trJJe liheJaltg tiaa gw the fermatien-of a donaensns in faJ r of JeJensJ Jee faJoretle to the US traJe reiations age a aPyroaehing a watershed with the imgending g JJfg week of Japan' 8 action program' under the shadow of three Congressional retaliation At the same time Japan a Je gw debated decision whether to do away with its onewpereJn GNP defense spending limit is coming to a critical zun ure and Japan 3 consideration of SDI and military technoloJJ exchange with the U8 is also under close review 1' 'k i There is growing alarm in Japan reflected in the private statements of officials and recent press reports over the increasing prospects of Congressional trade retaliation Many of the reports JXpress serious concern that the US will begin soon to step up defense pressure in concert with trade demands There have been increasingly broader hints from prewdefense elements in Japan that the GOJ will soon replace the one percent limit with a new limit based on a defenJJ buildup plan permitting much greater flexibility in the future allocation of funds for national security None of the statements on the issue have been definitive however and there is reportedly strong resistance to the proposal from opposition parties and more importantly from within the LDP A July 25 Tokxo Shimbun article quoting a Japanese givernment source cited US administration pressure on Nakasone to replace the one-percent ceiling to give the executive branch a weapon to convince Congress and the American public of Japanese good faith The report though inaccurate is a good CONFIDENTIAL '1 w- m 3'5 x 501 E15 ma 9 Ella wm Ea EFJEJ 3 3 2 gig i'g 3 I 0 5 zgig MES E wr g I x gensa w m also-Lag Dgwereg ag xi wga 'mt at hami - gang an the issue gt an tha a her ha g a'g cgiag-yxognam and othax mgasuxeg i a ly Qg a a w dww - -- 111m 94% Jr r x g 3a rial seri us cansequ e - Drafted 7 26 85 x8711 CONFIDENTIAL elect 9 $9 i aa a ziz imt 39 um um mm kgnitx any d m tie Poii gag 'a 'fQi gra ual d e sarhuildup ie at in-j q w at other czitical e enae isgu i' ttana era and green emant 0f speci i influenced by events in the gaming'weaks This document is from the holdings of The National Security Archive Suite 701 Gelman Library The George Washington University 2130 H Street NW Washington D C 20037 Phone 202 994-7000 Fax 202 994-7005 nsarchiv@gwu edu