What To Do About the U.S.-Japan Economic Conflict

Courtesy Reuters

We are now experiencing the third episode of major economic conflict between the United States and Japan in the last 12 years.

The first of these episodes led to the U.S. import surcharge of August 1971, viewed in Japan as the second of the "Nixon shocks" aimed at that country, and a U.S. threat to invoke the "Trading with the Enemy Act" against its chief Pacific ally. The second episode produced major U.S. pressure on Japan during 1977-78 to boost its domestic growth rate, with lasting damage to Japanese confidence in its American connection and immediate impact on the political career of the then Prime Minister, Takeo Fukuda. The third, current, episode promises to be the nastiest yet-with the United States joined as demandeur by the European Community, with racist overtones already creeping into the rhetoric and frustration on both sides of the Pacific, and with obvious spillover onto the reemerging issue of security relations between the two countries.

To be sure, there has been fairly steady tension between the United States and Japan over economic issues ever since Japan emerged as a major industrial power. Japan's amazing success in penetrating an increasing number of key global markets, ranging from the original textiles through shipbuilding and steel to automobiles and high-technology electronics, has won it grudging admiration but also growing hostility as a disruptive force in American economic life and brought repeated charges of "unfair" competition. Its apparent reluctance, or even inability, to expand substantially its imports of manufactured products has produced steady charges that Japan is itself highly protectionist, a "free rider" on the open trading system from which it benefits so greatly but within which it seems unwilling to provide others with truly reciprocal opportunities.1

These ongoing problems have been the subject of virtually continuous negotiations between the two countries for over two decades. Such discussions have centered sometimes on U.S. demands for Japanese export restraint, sometimes on U.S. demands for Japanese import liberalization, sometimes on

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