The Future of U.S.-Japan Trade Relations

By Barshefsky, Charlene | Law and Policy in International Business, Summer 1994 | Go to article overview

The Future of U.S.-Japan Trade Relations


Barshefsky, Charlene, Law and Policy in International Business


Trade is an essential element of the Clinton Administration's economic and foreign policies. It derives its importance from this Administration's signal emphasis on economics. This emphasis begins at home, with policies aimed at deficit reduction, new investment in education and training, and expansion of our nation's infrastructure in the traditional sense and through the application of information high technologies. It continues by seeking to ensure that foreign markets are open to competitive exports. This fall, congressional passage of the NAFTA and the successful conclusion of the GATT Uruguay Round negotiations demonstrated the U.S. commitment to achieving greater economic growth at home and abroad through opening markets to trade and investment.

Around the world, deregulation and market-opening policies are sweeping through places few would have predicted. From Eastern Europe to Latin America and Asia, countries with heavily restricted markets have moved toward a recognition that prosperity increasingly depends on the ability to compete in an open international system, and that a closed market only leads to a loss of competitiveness and economic vitality.

Amid a widening trend of opening markets, the Japanese economy presents unique challenges. It is impossible not to admire the tremendous advances of the Japanese economy in recent decades, or to recognize the beneficial lessons the world has learned from Japanese management and manufacturing practices. At the same time, however, it is impossible to ignore the very substantial economic imbalances that have continued for years between Japan and the rest of the world, and its underlying market access barriers.

Whether one looks at economy-wide indicators, such as Japan's manufactured goods imports as a percentage of GDP, or its levels of inward foreign direct investment, or sector-specific indicators such as relative price levels, the conclusion is the same: as compared to other major industrialized economies, Japan's domestic market still remains significantly less open to foreign competition despite years of market-opening efforts. When these facts are viewed in combination with Japan's enormous and persistent global current account surplus--the single greatest imbalance in the current international economic system--the inescapable perception is that, for Japan, trade with the United States and much of the rest of the world is too much of a one-way street.

Limited access to the Japanese market imposes high costs on the United States and Japan's other trading partners, as well as on Japan. Looking only at United States exports, the Institute for International Economics estimates that a full liberalization of Japan's economy would result in an expansion of U.S. exports of $9 to $18 billion annually, half of which would be in manufactures and a third in agricultural products. At approximately 20,000 job opportunities per $1 billion in U.S. exports, this increase could translate into 180,000 to 360,000 jobs. Of course, it is well-documented that export-related jobs tend to be higher-wage jobs. Moreover, since the United States accounts for less than 25 percent of Japan's total imports, the job creation benefits for the rest of the world are at least twice the number for the United States.

Japanese consumers and businesses also bear the brunt of policies and regulatory practices that restrict market access in Japan for foreign firms. As President Clinton said in his speech at Waseda University last July, Japan's high prices fall most heavily on its own people. Limited market access in Japan fosters inefficiencies that slow economic growth and today hamper the competitiveness and productivity of Japanese business. Japan's policies therefore burden not only Japanese consumers, but the Japanese economy overall, and with it, the world economy.

Many Japanese business and political leaders themselves recognize the need to reform economic policies and regulatory practices in Japan as a means to recover from Japan's current recession and to restructure their economy and business.

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