The purpose of this report is to discuss trade disputes and negotiations between the United States and Japan. The report will be largely concerned with problems related to importing and exporting between the two nations. It can be seen that these problems have been developing over the past two decades. In the years following the Second World War, the United States and Japan experienced relatively smooth economic relations. This was primarily because the United States played a stronger role in the relationship, with Japan graciously accepting America’s political and economic superiority while busying itself with work to repair its war-torn lands.
In the 1970s, this simple relationship began to undergo an important transformation. Japan began to experience greater economic stability and was able to enter the international market with innovative developments in automobiles and electronic products. An atmosphere of hostility between the governments of the two nations quickly developed when the United States perceived that Japanese exports were taking a lead over many comparable domestic products. For this reason, the United States began to take a suspicious view of Japan’s trade ambitions. Thus: “As Japanese exports have poured into American markets, Japanese corporations have been accused of conducting ‘adversarial trade,’ targeting one American industry after another for destruction.” One of the earliest trade disputes between the two nations involved exportation of Japanese textiles to the United States. This dispute, which occurred between 1969 and 1971, was perceived as a vital international issue at the time. However, the textile situation has proven to be a rather small-time concern in the wake of larger trade issues that have occurred since then.
The ongoing atmosphere of trade disputes between Japan and the United States is in sharp contrast to the experience of the two nations prior to the 1970s. In fact, in the years following the Second World War, the United States actively sought ways to help Japan improve its economic condition, just as it did with its other newly acquired ally, West Germany. However, whereas West Germany pursued trade policies which limited its export activity, Japan undertook policies which caused it to increase its export-led growth. Although the United States had originally wanted Japan to strive for economic stability, feelings of indignation arose when it become apparent that Japan was far exceeding expectations, and that this excess was due in part to Japan’s successful entrance into the American market. This development was all the more disturbing in the view of the United States when it was considered that other nations were able to succeed in international trade without resorting to such tactics. As such:
Tokyo’s aggressive, export-oriented economic policies . . . have created mounting resentment, in part because Japan’s strategy contrasts so sharply with the trade strategies of other successful export economies.
Most of the trade disputes that currently exist between the United States and Japan grew out of the environment of the international oil crises in the early 1970s. During that time, President Carter had hoped that both Japan and West Germany would be able to help the United States pull out of its recession “by pursuing expansionary economic policies at home and by running balance-of-payments deficits to offset OPEC surpluses.” However, neither Japan nor West Germany was willing to take such a chance during the precarious economic conditions of the time. This refusal in and of itself did not adversely affect the United States, which was able gradually to improve its economy without following through with Carter’s plan. However, the real problem arose when Japan, aware that the United States’ economy was growing healthy again, began to follow strategies for heavy exportation. The result was that, by the late 1970s, Japan had acquired a great trade surplus with the United States. It was then that the United States began to be concerned about Japan’s trade policies:
U.S. officials, businessmen, and journalists argued that Japan was acting in a narrow and short-sighted manner that ignored its international responsibilities. Moreover, specific industry problems, such as Japanese exports of color television sets and steel to the United States, threatened U.S. firms and jobs and heightened the tensions.
Such problems were highlighted in 1987 when the United States Congress protested against Japan’s Toshiba Machine Company. The Congress members felt that Japan had taken its aggressive exporting practices a step too far when the Toshiba Company sold computerized multi-axis milling machines to the Soviet Union, an act that violated the regulations of COCOM, the Coordinating Committee for multilateral export controls. The United States was particularly concerned about this act of trade between Japan and the Soviet Union since the milling machines gave the Russians the technology to make vast improvements in their nuclear warfare submarines.
The United States felt that Japan, which depends heavily on the U.S. military forces for its national defense, had used its trade policies in an abusive manner. To the United States, this represented just one more step in an ongoing trade battle in which “Japan was already guilty of running up a huge trade surplus through questionable tactics while keeping its own market largely closed to American products.” Thus, the United States Congress reacted to this act by seeking to pass a trade bill banning the import of Toshiba products. However, it quickly became apparent that such a bill would harm many American businesses as well. It has reached the point where trade between the United States and Japan, while not being free from disputes, has become a vital portion of America’s overall economy. In particular, a number of U.S. distributors rely very strongly on Japanese electronic products such as those manufactured by Toshiba. As such, the Congress was forced to take a broader view of the situation and reconsider the proposed trade bill.
The Japanese, in the meantime, felt that the reaction of the United States to their trade with the Soviet Union was out of proportion. It was pointed out that the United States did not react so strongly when Norway was found guilty of illegal computer trade with the Soviet Union. Furthermore, Japan’s leaders felt that the attitude of the United States was that their entire country was to be held responsible and punished for the faults committed by a single private company. However, it can be seen that the U.S. reaction was based on overriding concerns regarding trade relations specifically with Japan. The United States realizes the economic importance of successful, ongoing trade with Japan. The events of the summer of 1987 simply reinforced the frustrations felt by the United States over trade disputes regarding Japan’s limited import laws. Japan’s failure to accept U.S. imports has been perceived as being especially troublesome in view of its powerful drive to increase its export trade to the United States to the fullest possible extent. The result of this situation has been that Japan has acquired a vast trade surplus while the United States has suffered a serious trade deficit in which a large percentage is connected to Japan.
Trade disputes between the United States and Japan have often centered around the problem of Japan’s aggressive exportation of technological products to the American market. This problem has often raised heated debate between the two sides. The United States has felt that Japan’s entrance into the high-technology marketplace has been a serious detriment to America’s own technological industries. Thus, it can be seen that many of the trade disputes between the two nations have arisen as a result of Japan’s import and export policies combined with its successful drive to compete with a vital U.S. concern. An example of how these problems have contributed to trade disputes between the United States and Japan can be seen in the case regarding Nippon Telephone and Telegraph Company (NTT) in the late 1970s. The dispute in this case arose when 11 . during the course of negotiations for a code on government procurement in the Tokyo Round of multilateral trade negotiations . . . the United States requested that Japan place NTT under the code–that is, subject to NTT’s procurement practices to the competitive bidding procedures called for in the new code.” Japan felt that it should not have to subject the NTT to such a code, since such codes are not required in other national telephone systems. The United States and Japan entered into serious negotiation over this issue, which quickly elevated to outright dispute and even hostility. There were even fears of a major confrontation of the two nations over the issue, until it was finally resolved in late 1980, with “an agreement detailing procedures for U.S. access to the NTT procurement market.”
The above-mentioned cases provide examples of how trade disputes between the United States and Japan have tended to develop. Hideo Sato and Michael W. Hodin have pointed out that such trade disputes tend to follow a set pattern. Generally, the threat of Japanese importation causes a U.S. domestic industry to seek protection from the government, which in turn seeks an agreement from the Japanese government for some form of trade restraint in that area of industry. The disputes arise when the Japanese government, concerned with its own domestic industries, refuses to limit its trade according to the U.S. requests. These problems are inflamed whenever there has been mass unemployment or union pressure in the United States.
The steel industry in the United States was faced with such a challenge in 1977. In fact, problems with steel trade at that time led to an international economic crisis involving the United States and Japan. The U.S. steel industry had experienced problems with demand and union strikes which caused steel prices to rise steadily throughout the 1970s. American steel purchasers, in turn, began turning to imported steel from Japan, thereby “further pinching profits and raising dumping protests.” By 1977, this situation reached crisis proportions when Japan’s own weak domestic market for steel caused the nation to seek even more aggressive export practices. When the U.S. steel industries turned to the government for help, it was seen that trade negotiations were going to be subjected to the typical frustrations that have occurred in most other trade disputes between the two nations. Economic and political friction grew between the United States and Japan throughout 1977 until it was finally announced that the United States would “establish a trigger price mechanism (TPM) for controlling the prices of foreign steel imported into the U.S. market.”
It is interesting to note that the steel industry crisis of 1977 stemmed out of an atmosphere in which both the United States and Japan were willing to negotiate positively for a quick resolution, and in which neither side had taken a particularly strong stance. The cause of the crisis must be seen in the differing perceptions between the two nations on trade policies. For Japan, the issue was perceived “primarily in terms of its relations with the United States.” As such, Japan regarded the issue of steel exports as one pertaining simply to their entrance into the U.S. market. However, for the United States, the issue was much larger and more complex. To U.S. negotiators, the steel industry crisis represented just one area in which U.S. industries were seeking limits on Japanese imports. It is for this reason that the negotiations over steel trade developed into an all-out crisis despite the apparent willingness of both sides to reach a quick settlement.
Similar trade disputes have arisen between the United States and Japan in other industries as well. For instance, problems arose in 1977 and 1978 regarding the U.S. desire to increase exportation of agricultural goods to Japan. The United States felt that it could compensate for its faltering trade in other industries by stepping up exportation of beef and citrus products to Japan. Again, simple negotiations for increased trade in this area quickly blossomed into a full-scale dispute in which “bilateral talks broke down a number of times, producing a high level of tension between the two countries.”
An even larger crisis arose in 1980 between the automobile industries of the United States and Japan. Partially because of the oil crisis of 1973, American consumers began to purchase economic Japanese import cars in high quantity throughout the 1970s. This led to a situation in which it became necessary for the U.S. government to enter into trade negotiations with Japan in an attempt to seek export limits on automobiles. With the advent of the Reagan administration, it was seen that a certain degree of success was being met in these negotiations. However, at the same time, concerns were raised over the fact that the Reagan administration had sought these resolutions by “adding a diplomatic dimension to what hitherto has been a domestic economic problem.” In this regard, Japan agreed to seek limitations on the export of automobiles to the United States, but political factors made it questionable as to the extent to which the Japanese government would be able or willing to follow through effectively with these restraining measures.
Despite the serious trade disputes that have occurred in the past, there are certain indications that trade relations between the United States and Japan may be gradually attaining improvement. For instance, it has been noted that Japan has not completely disregarded the U.S. demands. In particular, it is felt that Japan has cooperated in an effort to reduce its need to place emphasis wholly on exports to the United States in order to foster its own economic growth. This can be seen in recent indications that Japan has reached the point whereby it is now one of the most economically powerful nations in the world. As such:
In accordance with U.S. requests, Japan has stimulated its economy and made growth a priority. Although the change is benefitting American exporters only marginally, it is opening a rich market for other Asian nations and has taken some pressure off their exports to the U.S.
It can readily be seen that such a situation will ease economic relations between the United States and Japan in the future if other factors involved in trade negotiation are equally successful. However, even this development has been viewed with caution. In this regard, it has been noted that Japan’s recent domestic economic growth represents cooperation with the demands of the United States. However, there is concern that the exchange rate between the Japanese yen and the American dollar may cause future difficulties despite Japan’s increased growth. If the yen continues to rise against the dollar, it is predicted that Japan’s trade surplus with the United States may continue to grow as well. As such, ” . . . this could lead to a further escalation in US-Japan trade tensions and quite possibly to thrusting the U.S. another round of dollar devaluation . . . economy into an inflationary spiral and Japan into another recession.”
Nevertheless, there are still hopeful signs that eased trade tensions between the two nations may yet be seen. This can be seen, for example, in Japan’s recent efforts to deregulate many of its domestic markets, thereby opening the door to increased import trade there. This move has occurred primarily as a result of continued pressure from the United States regarding its desires to open up the beef and citrus markets in Japan. Thus, Japanese leaders have reached the conclusion that such deregulation is the only way to overcome the ongoing situation of conflict between the two nations in the area of international trade. However, it has also been noted that this change will bring about great difficulties for Japan in its domestic relations. By reducing its controls over import quotas, it is feared that many of Japan’s domestic agricultural markets will be severely affected. In addition to the beef and citrus markets, there has been considerable concern over the desire of the United States also to open up the rice market in Japan. Rice, being Japan’s primary agricultural resource, is a particularly touchy issue in terms of trade negotiations with the United States. It has been stated that “if Japan opens its rice market to foreign growers, up to 1 million domestic farmers will lose their jobs.” Thus, although there are positive signs that Japan will reduce its import quotas on agricultural crops, there are also still signs of continued friction in trade negotiation over the rice market.
Concerns over trade relations between the United States and Japan arose with the establishment of Noboru Takeshita as new Prime Minister of Japan in replacement of Yasuhiro Nakasone. It was noted that Nakasone and Reagan had made some progress in smoothing out trade relations between the two countries. With the entrance of Takeshita, concern was raised over how the new Prime Minister would approach the problem of trade disputes. Although it appears that continued progress will be made, it was noted in Takeshita’s first visit to Washington that vital trade issues were largely ignored. The concept of increasing agricultural.trade in minor products was discussed, such as milk and starch; however, the United States is primarily concerned with opening up larger markets such as beef and citrus. Furthermore, Takeshita “volunteered in a vague way to help U.S. contractors crack Japan’s closed construction market.” The possibilities for such a development seem remote at this time, given the fact that Japan’s domestic construction industry is currently undergoing a dramatic boom.
A number of critics have charged that the failures to achieve smoother trade relations with Japan have been primarily the fault of U.S. politicians. In this regard, it has been noted that the Reagan administration has attempted to “minimize the seriousness of the issue.” Because the United States has apparently begun to take a relaxed attitude toward the problems of trade with Japan, it is felt that this could be a sign that the United States simply doesn’t care about the issue any longer, or “worse,” it could be seen as a sign that the Americans have become so dependent on Japan’s financial power that they dare not risk trade frictions.” However, it is equally clear that the United States alone cannot be blamed for all aspects of the trade negotiation problems that exist between the two countries. In this regard, it has been noted that the true problem is still the inability for U.S. businesses to export products adequately in the face of “Japan’s Byzantine distribution system.” Only if Japan is able to open the door for increased U.S. exporting will the real problems in trade between the two nations ever be cleared up.
The problems of trade with Japan have become an issue in the last two decades because of Japan’s sudden, rapid economic development. Japan’s drive toward greater economic success has brought the nation to a point where it now has considerable financial strength in the global community. It is important to note that with this increased economic growth, there also comes additional international responsibilities. This is particularly true in an economy such as that of Japan, in which exportation is a primary vehicle for increased growth. For this reason, it has been stated that:
Japan has now attained a status of world, rather than merely regional, power and it must begin to conceive policy not only in terms of the consequences to its own domestic economy but also in terms of the consequences to others.
Thus, the United States has shown increasing concern over Japan’s international economic responsibilities. This concern has been compounded by Japan’s traditional position of remaining relatively isolated in terms of foreign affairs.
It can be seen that the United States and Japan have progressively gotten into a bilateral setting for trade negotiation which has shown both advantages and disadvantages. The United States originally showed an interest in such a setting because it seemed to make trade negotiations with Japan easier to deal with. However, this situation has caused important limitations for both Japan and the United States. Whereas Japan has become limited in its economic development to the necessity of considering U.S. needs and desires, the United States at the same time “has taken upon itself the thankless and unpopular role of browbeating Japan into the liberalization of its trade posture. In addition to these problems, it has been noted that “the United States and Japan do not exist in a bilateral vacuum.” For this reason, it is important for both nations, in the course of trade negotiations, to take a broader perspective of their interactions not only with each other but with the larger global picture as well.
Many suggestions have been offered for ways to improve trade relations between the United States and Japan. It is clear that both nations possess certain strengths and weaknesses which should be considered in the development of a plan for improving trade negotiations. In this regard, it has been noted that:
Both Japan and America entertain serious doubts about their national security over the long run. Japan worries about access to food, oil and other raw materials; America worries about the Japanese threat to its high-tech industries.
In order for trade negotiations between the two nations to make any serious headway, it is important that these specific fears on both sides be addressed and rectified. It is clear that increased import-export trade between the two would help to overcome these worries. In particular, there needs to be increased exchange between the United States and Japan in terms of their respective needs. Even more important, however, is the need for Japan to diversify its export policies, thereby increasing its economic independence in the international market without possibly detracting from America’s domestic market needs. In all, there are indications that trade relations between the United States and Japan may continue to improve in upcoming years. Both nations are particularly relieved to note that the United States has recently seen increased export-led growth. There is hope that this situation will continue in the future; however, at the same time there are warnings that new trade disputes may arise between the two nations at any time. Historical, cultural, and political factors have all contributed to the differences between the two nations that have created continued tension over trade issues. It is certain that the situation is easing somewhat as the United States gradually finds opportunities for increased trade in Japan, and as Japan gradually reforms its policies pertaining to both exporting and importing. At the same time, there are indications that Japan’s need for excessive exporting will continue for some time to come. 37 As such, there are also indications that the United States and Japan may continue to be involved in severe trade disputes from time to time for many years to come.