Some Analysts See No Problem over Trade Deficit with Japan

By Passell, Peter | THE JOURNAL RECORD, February 16, 1994 | Go to article overview

Some Analysts See No Problem over Trade Deficit with Japan


Passell, Peter, THE JOURNAL RECORD


"America's trade deficit with Japan is not very popular with the American people or the American government," President Clinton allowed at the news conference with Prime Minister Morihiro Hosokawa of Japan in which the two agreed to disagree over trade. "It's hard to explain it, year in year out, always getting bigger."

Most economists would undoubtedly agree with Clinton that mega-deficits are not popular, nor easy to explain to the great majority of Americans who prefer their economics lessons in easy-toswallow gel caps.

But it is equally safe to say that few economists think the chronic trade deficit with Japan is a problem in itself worth much of a fuss _ or, for that matter, an economic problem at all.

This does not necessarily mean that individual American exporters don't have a legitimate gripe with the Japanese: Motorola may encounter a lot of static when it tries to sell mobile phones in Tokyo, and Chrysler may hit a brick wall when the company tries to sign up dealers for its nifty little Neon runabout.

But there is no reason to believe that free trade nirvana _ an entirely open world trading system _ would balance the Japanese-American account or even change it measurably.

"The Japanese may be giving American exporters a hard time, but the bilateral deficit is not evidence of it," said Robert Solow, a Nobel laureate in economics at the Massachusetts Institute of Technology.

By the same token, economists generally reject the idea that America's chronic trade deficit with the world (or Japan's chronic surplus) is linked to anyone's trade policy.

"America runs a deficit because Americans spend more than they produce at home," said Gary Saxonhouse, a University of Michigan specialist in the Japanese economy. "We make up the difference in imports."

The day may even come, Saxonhouse suggested, when America will regret demands that the Japanese spend more on themselves and lend less abroad to accommodate capital-scarce economies.

"It would be better to build bridges in Tadjikistan that are badly needed, than more back home in overbuilt Tohoku Province," he argued.

Start with the relatively easy part, the logic behind mainstream economists' near indifference to country-to country deficits.

"I have a chronic deficit with my barber, who doesn't buy a darned thing from me," said Solow, who still manages to get by selling his expertise to a university _ which sells him nothing in return.

The economist is satisfied as long as he earns enough to pay his bills and save for a rainy day; to try to balance his accounts one by one with the butcher, baker and laptop computer maker would be nothing short of absurd.

Saxonhouse notes that Japan has virtually no natural resources of its own; much of its economy is devoted to manufacturing.

Hence if, by accident or design, Japan were to buy exactly as much abroad as it sold each year, the island would almost certainly run surpluses with most countries (including America) that were not in the business of exporting oil.

Of course, Japan does not balance its trade with the rest of the world. It exports roughly a third more than it imports, making up the difference with loans to foreigners or direct foreign investment in factories, office buildings and the like.

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