The Global Payments Imbalance, the 'Systemic Crisis' and Japan-U.S. Economic Relations

The paper asks what facts constitute the threat of a "systemic crisis" of the world trading system, analyses the factors and conditions which may contribute to fomenting this threat, and discuss how to cope with it.

The paper first discusses what "the world trading system" is, and what have been important changes to the system from the beginning of the post-war period to the present. The world trading system is the worldwide economic system with GATT and the IMF at its central components. Within the framework of such a system, the economies of many countries have developed remarkably since WW ll. Global economic integration has been furthered greatly, and thus we can call this "system" a magnificant success.

At the same time, however, a number of difficulties have emerged in the system. Among them, the volatile exchange rate movement, the LDC debt problem, large current account imbalances of Japan and the United States, an increasing number of serious cases of "trade friction", and the growth of protectionism in the U.S. are examined. While the first four problems cannot yet be said to have posed a threat to the world trading system, the last one has been formenting a threat of "a systemic crisis". In the United States, a number of peculiar characteristics of its international economic relations, such as being the key-curency country, an anomaly in its relation with GATT and its very strong bilateral bargaining power, have allowed protectionism in the U.S. to give rise to a threat of a systemic crisis.

Although protectionism in the U.S. is now posing a threat, the fundamental common interests and cooperative relationship among Western countries, especially between Japan and the United States, in the world trading system are still overwhelming. In order to preserve this underlying basis of trust and cooperation, besides requesting self-restraint on the part of the United States, Japan should improve domestic rules and regulations so as to make them transparent and conducive to free trade, make efforts, on the one hand , to liberalize agricultural imports, and, on the other hand, to improve agriculture-related articles of GATT, and maintain a firm commitment to free trade principles.