Let’s Deal Constructively With Japan : Our Relationship Is Vital and Beneficial to America

The official visit to the United States by Prime Minister Yasuhiro Nakasone underscored a point that I’ve been making since I took up my job in Japan 10 years ago: There is no more important bilateral relationship in the world than the one between the United States and Japan.

Our economies, and therefore our lives, are more closely linked than ever before--a source of common prosperity and strength.

But it can be, as we have seen, a source of friction as well. The large trade imbalance, remaining Japanese trade impediments and the insularity of some Japanese business practices are irritating to Americans. The seemingly endless American demands to open markets and to change economic policy are irritating to the Japanese. Yet nothing could be more obvious than that the United States and Japan must cooperate on economic policies. Good sense, our national interests and the financial markets demand it.

The Nakasone visit reaffirmed the vital necessity and soundness of our overall relationship with Japan, cleared the air on some of the economic issues and set an economic agenda for ongoing action. We must follow through with that agenda.

Japan has made a tremendous leap in the last 35 years from a poor, agrarian country to a wealthy nation with stunning technological capabilities. It is hard for Japanese --or for Americans, for that matter--to comprehend fully the amazing changes in Japan and their permanence.

But Nakasone and, increasingly, other Japanese see that with Japan’s prosperity has come responsibility. They know that export-led growth and large trade surpluses are no longer possible, that they disrupt trade relations and prevent an improvement in the domestic standard of living. By removing trade impediments, by planning more rapid domestic-led growth and by increasing aid, the Japanese government is heading in the right direction.

We Americans ought to view the bilateral trade imbalance with some perspective. Even if Japan eliminated all its trade barriers, it would not eliminate this imbalance. The United States had a global trade deficit last year of $170 billion. Of that, the deficit with Japan was $59 billion --intolerable, but still only about one-third of America’s problem. Most experts estimate that if the Japanese did everything that we have asked them to do to eliminate barriers, an increase of $8 billion to $10 billion would result. Let’s make it $15 billion to be generous--still leaving a deficit of $44 billion. Our global deficit and much of our deficit with Japan are mainly determined by our macroeconomic policies --particularly our massive federal budget deficit. Until we get our budget under control, we may find that reducing a bilateral deficit will not eliminate the problem. Moreover, the United States is not without blame. We maintain quotas on steel, textiles, machine tools and other products. Sanctimony and self-righteousness rarely result in sound policy.

Finally, most experts agree that even if both countries had global trade in balance, Japan would have a sizable surplus with the United States because of the structure of our trade exchanges.

There are also many economic benefits of our relations with Japan, and a number of myths. Trade with Japan has not cost jobs; roughly 650,000 Americans owe their jobs to exports to Japan from America. Roughly 240,000 Americans work directly for Japanese companies, which have invested more than $25 billion in the United States. Moreover, we export more to Japan than we do to West Germany, France and Italy combined.

We exported nearly $6 billion in agricultural products to Japan, about 20% of our total agricultural exports. Japan is far and away our biggest overseas agricultural market. Running a distant second is the Netherlands, the entry point for most of Western Europe, which imported less than $3 billion.

Capital flows, loans from Japan to the United States, help cover our interest payments on the federal debt and lower U.S. interest rates, too.

The United States and Japan have a broad and wide-ranging relationship, going far beyond commerce. The peace and security of the Pacific depend on our strong alliance. U.S. military bases in Japan deter aggression throughout the region. Not only do the Japanese provide these facilities, but also they are now contributing about $1.7 billion annually to maintain them.

Japan has the sixth-largest defense budget in the world, and the second-largest among America’s non-nuclear allies. Japan also contributes to security beyond its borders through a rapidly expanding aid program to key nations like Thailand, the Philippines, Pakistan and Egypt. This is not to suggest that it is anything less than crucial for Japan to carry through quickly and fully with the economic program that Nakasone outlined during his visit. But we should approach Japan with good will and an even temper. There should be no more talk about trade wars and arbitrary or mandatory reciprocity. Japan is a reliable ally and a cooperative partner.

The trade, financial and cultural ties between us are complex and, on balance, beneficial to the United States. The relationship may be uncomfortable from time to time. But cooperation, not confrontation and protectionism, is the right prescription.

It is high time that we quit nickeling and diming this vital relationship by protracted negotiations on sometimes obscure sectoral issues and started looking for means to deal constructively with our overall economic relationship with Japan. This means coordination of our macroeconomic policies, which President Reagan and Prime Minister Nakasone agreed to do in Washington.

We might also consider a personal proposal of mine--and I stress that it is personal: the idea of a free-trade agreement between Japan and the United States. The economies of the two countries are already in the process of being integrated. A free-trade agreement could accelerate this process, open markets in both directions and perhaps serve as the prelude to a vast free-trade agreement embracing much of the Pacific Rim. This would be a worthy and fitting goal for the United States as we enter the 21st Century--the century of the Pacific.