Japan's Economic Impact on the United States

Abstract

Japan has become increasingly competitive rather than complementary in relations with the United States. Its impact on the U.S. economy stems from structural and policy sources. An important structural source is the vertical anatomy of Japan's foreign trade, which in turn is largely determined by its unbalanced physical endowment. On the policy plane, Japan has pursued a supply-side strategy that is specifically linked to the doctrine of dynamic comparative advantage. Its objective is to achieve international competitive power in U.S. markets, among others. Japan's supply-side approach is thus a precursor of that of the United States. The U.S. version, however, differs from the Japanese in having domestic rather than international priorities. The U.S. response to its persistent trade deficits with Japan has tended to be bilateral and protectionist. The various “voluntary” export restraints Japan has adopted under U.S. pressure have dark implications because of the cartel arrangements by which they are enforced. These arrangements revive and nourish Japan's cartel tradition, similar to that thriving in major European Economic Community (EEC) nations. In the event of serious economic difficulties, Japan and the EEC would be strongly inclined to internationalize and combine their cartels. This would have adverse repercussions on the domestic and external sectors of the U.S. economy.