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