1993 Reports

US-Japan trade friction and its dilemmas for US policy

Noland, Marcus

Trade frictions between the United States and Japan go back well over a century. While the form and substance of these problems have changed significantly since the time of Commodore Perry, the size and technological dynamism of the contemporary Japanese economy present US policymakers with a unique set of challenges. Bergsten and Noland (1993) group these challenges into four categories: microeconomic, structural, macroeconomic, and systemic. The focus of this paper is on the policy problems posed by the microeconomic and structural differences in the two economies, both because these are the most controversial intellectually and well and the most sensitive politically, at least in the United States. Moreover, this paper is exclusively on the Japan-related aspects of these problems, for reasons of both brevity and the presumed interests of the audience of this volume. This is certainly not to say that policies and practices in Japan are the source of all of the problems in the bilateral relationship: a persuasive case can probably be made that much of the tension in the bilateral relationship stems from anxiety in the US over declining competitiveness which is largely a domestic issue. Nonetheless, this paper focuses on Japan-related concerns. The structure of the paper is to first examine the issue of Japanese uniqueness (which provides the justification for a Japan-specific policy), then evaluates the significance of this issue for the US economy. The paper then moves toward a more normative analysis, examining possible alternative policy approaches, and concludes with a discussion of current US policy toward Japan.