The U.S.-Japan Trade Problem: An Economic Analysis from a Japanese Viewpoint

         
Author Name Ryutaro Komiya / Kazutomo Irie
Creation Date/NO. May 1990 90-DF-12
Download / Links

Abstract

There are several misunderstandings underlying the debate on U.S.-Japan trade problems. In the light of the standard economic theory as well as historical and contemporary experience of various countries, the present level of the U.S. trade deficit should not in itself be a cause for serious concern. Also, it is a mistake to blame Japan for its trade surplus. What the U.S. should be concerned about is not so much the trade deficit in itself, as the extremely low savings rate for the entire economy. The fundamental causes of the U.S. trade deficit are macroeconomic factors in the U.S. economy. in particular the massive government deficit and the low savings rate in the private sector. The bilateral trade imbalance between the U.S. and Japan is the result of the respective countries' overall trade imbalance, not the cause of the latter. If the U.S. deems it necessary or desirable to improve the trade deficit in the medium- to long-run, the U.S. itself should endeavor to curb its domestic demand, raise its savings rate and expand productive capacity through improved productivity. Over the medium- and long-terms, tariff and non-tariff barriers of the U.S. trade partners, which many U.S. politicians and citizens seem to consider to be the cause of the U.S. trade deficit, have virtually no effect on the current account of the countries concerned.

Japan today is one of the most "open" countries among OECD members, with lower levels of both tariff and non-tariff barriers than most others. The claim that Japan's market is closed is an unfounded "myth" based upon misunderstandings.

There are the legal, economic, and political flaws in the "Section 301 Approach", which seeks to improve U.S. trade balance by requesting the U.S. trade partners to lower their "non-tariff barriers" (NTBs) through vigorous negotiations under the threat of unilateral sanctions. Even if the U.S. succeeds in removing what it alleges to be Japan's NTBs by the Section 301 Approach, that will have virtually no effect of improving the U.S. trade deficit.

For both the U.S. and Japan, there is only a very small area in which their economic interests are in conflict, whereas the areas in which they have common interests are by far larger. The U.S. should stop placing emphasis on negotiations that politicize bilateral trade problems with Japan and needlessly exacerbate frictions. Instead the U.S. and Japan should cooperate towards strengthening the global free-trade system by jointly seeking the success of the Uruguay Round.