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We are not excusing Japan's inexcusable auto protectionism, we are merely showing that when expending political capital on a trade issue, we must have up-to-date facts and an awareness of changing conditions of U.S. competitiveness.

3. In examining current and future United States-Japan trade problems, it is also instructive to study the management of past problems.

-How successful was our approach?

-Were we dealing with the underlying problem or only a shortterm manifestation of the problem?

The most expedient method of handling tension on a short-term basis might not be the most effective long-term solution. For example, rather than expending enormous goodwill forcing Japan to buy a few more tons of beef, could we have gained more by encouraging Japan to switch to a farmer deficiency payment type system or by addressing the real underlying problem, i.e., Japanese food supply insecurity? 4. Solving trade problems also requires a sensitivity to the politics of Japan and to the avenues available for mobilizing support. For instance, the power of such broad interest groups as farmers and small businessmen is not always a threat. At times, constituencies within these groups can be moved to see the benefit of importing certain U.S. products, and thus encourage liberalization of specific trade restrictions. The United States should seek to stress Japan's self-interest, rather than just relying on pressure tactics. We should also remember that the bureaucracies of Tokyo are as complex as Washington's, and that there are many ways of tackling a problem.

5. Finally, trade problems with Japan must be viewed within the context of her resource dependence and consequent need to export to pay for imports. Japan is the world's largest importer of nonmanufactured goods, and hence, very vulnerable. Her desperate need to earn foreign exchange to import 99 percent of her oil and 88 percent of her total energy supply explains her preoccupation to export, export, export. Manufactured exports have been the only means to obtain imports, for Japan has little else to sell. Yet it is worth noting that Japan's export of goods remains a relatively low proportion of her gross national product (GNP).

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Source: Ira C. Magaziner and Thomas M. Hout, "Japanese Industrial Policy", Policy Studies Institute, London, 1980 (p. 5).

Chapter II: United States-Japan Trade, Economic, and Exchange Rate Data

There are important reasons for focusing attention on trade problems with Japan and the Pacific.

First, over the past decade, we have incurred a cumulative trade deficit with Japan of $47 billion. That deficit continues, with no end in sight.

U.S. TRADE BALANCE WITH JAPAN (U.S. CENSUS DATA)

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Before proceeding, we note that from an economic point of view, a bilateral merchandise trade deficit should not be an object of great concern, as long as a nation's worldwide current account (goods and services) is in rough balance. This economic truth, however, is a political falsity. Writing as Members of Congress, in the heat of the political process, a merchandise trade deficit of the size we have been experiencing with Japan is a serious object of concern. For millions of Americans this highly visible deficit erodes their support of open trade; it creates tensions which threaten to spill over into unrelated sectors of our bilateral relationship. Having said this, we note that in Japan there has been a dramatic deterioration in the economically important current account, while in the U.S., our phenomenal surplus in services and return on investments has brought our current account into balance. Japan anticipates a current account deficit this year, while the U.S. is likely to have a surplus.

WORLDWIDE BALANCE OF TRADE1

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Second, despite the bilateral deficits, Japan is an enormous market for U.S. goods. The following table shows our principal exports to Japan.

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Note: Data in thousand yen converted to thousand dollars using IMF average for 1979 (219.17 yen per dollar).
Source: International Trade Commission (ITC).

Third, the problem created by Japanese imports can be seen by the following list of principal items Americans buy from Japan. These goods are largely high-technology and are often imported in such quantities as to impact dramatically on American producers.

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Total 1979 U.S. general imports from Japan: 26,242,852 (thousands of dollars).

Source: International Trade Commission.

A comparison of our leading exports to Japan versus our imports from her is devastating. The data seems to indicate that (aircraft excluded) we are a developing nation supplying a more advanced nation we are Japan's plantation: haulers of wood and growers of crops, in exchange for high technology, value-added products.

As we describe later, we believe this relationship is not acceptable, and can be corrected, through changes in trade and domestic policy.

Fourth, the trend lines of our share of trade with Japan are not encouraging. We have been losing our market share to the developing countries. As the following table shows, this has occurred over a wide range of products, e.g., food, fuels, chemicals, and manufactured goods. Trade barriers do not explain this data-the United States is simply providing less of Japan's imports, despite U.S. advantages over other suppliers from its long history of close trade and strategic association with Japan.

VALUE AND SHARE OF JAPANESE IMPORTS, BY MAJOR SOURCES AND COMMODITY GROUPS, 1964, 1970, AND 1977

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