U.S.-Japan Economic Relations: Significance, Prospects, and Policy Options

William H. Cooper
Specialist in International Trade and Finance

Japan and the United States are two major economic powers. Together they account for over 30%

of world domestic product, for a significant portion of international trade in goods and services, and for a major portion of international investment. This economic clout makes the United States and Japan potentially powerful actors in the world economy. Economic conditions in the United States and Japan have a significant impact on the rest of the world. Furthermore, the U.S.-Japan bilateral economic relationship can influence economic conditions in other countries.

The U.S.-Japan economic relationship is strong and mutually advantageous. The two economies are highly integrated via trade in goods and services—they are large markets for each other’s exports and important sources of imports. More importantly, Japan and the United States are closely connected via capital flows. Japan is a major foreign source of financing of the U.S. national debt and will likely remain so for the foreseeable future, as the mounting U.S. public debt needs to be financed and the stock of U.S. domestic savings remains insufficient to meet the investment needs. Japan is also a significant source of foreign private portfolio and direct investment in the United States, and the United States is the origin of much of the foreign investment in Japan.

The relative significance of Japan and the United States as each other’s economic partner has diminished. This trend is due in part to the rise of China and other emerging economic powers. For example, China has overtaken Japan as the largest source of foreign financing of the U.S. national debt. Nevertheless, analyses of trade and other economic data suggest that the bilateral relationship remains important, and policy leaders from both countries face the challenge of how to manage it. The trend is also due to the mediocre performance of the Japanese economy over the last two decades, which was exacerbated by the global economic slowdown beginning in 2008, and other setbacks, including the tsunami, earthquake, and nuclear accidents that occurred in March 2011. Japan is still struggling to achieve sustained economic recovery.

However, during the last decade, U.S. and Japanese policy leaders seem to have made a deliberate effort to drastically reduce the friction that prevailed in the economic relationship during the 1970s, 1980s, and the first half of the 1990s. On the one hand, this calmer environment has stabilized the bilateral relationship and permitted the two countries to focus their attention on  other issues of mutual interest, such as national security. On the other hand, as some have argued, the friendlier environment masks serious problems that require more attention, such as Japan’s continuing failure to resolve long-standing market access barriers to U.S. exports. Failure to resolve any of these outstanding issues could heighten friction between the two countries.

More generally, other issues regarding U.S.-Japan economic relations may emerge on the agenda of the 113th Congress. U.S. and Japanese leaders have several options on how to manage their relationship, including stronger reliance on the World Trade Organization; special bilateral discussion frameworks and agreements; or a free trade agreement such as the potential Trans- Pacific Partnership (TPP) agreement in which Japan has decided to participate. Japan’s participation in the TPP has renewed concerns of some Members of Congress over a number of

Japanese trade practices.

Date of Report: August 13, 2013
Number of Pages: 23
Order Number: RL32649
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Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy

J. F. Hornbeck
Specialist in International Trade and Finance

Congress created Trade Adjustment Assistance (TAA) in the Trade Expansion Act of 1962 to help workers and firms adjust to dislocation that may be caused by increased trade liberalization. It is justified now, as it was then, on grounds that the government has an obligation to help the “losers” of policy-driven trade opening. TAA is also presented as an alternative to policies that would restrict imports, and so provides assistance while bolstering freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. As in the past, critics strongly debate the merits of TAA on equity, efficiency, and budgetary grounds. Nonetheless, finding agreement on TAA remains important for forging a compromise on national trade policy.

TAA program authorizations are scheduled to expire on December 31, 2013. The Trade Adjustment Assistance Extension Act of 2013 (S. 1357) was introduced in the 113th Congress. It would extend TAA programs through 2020. President Obama also supports TAA reauthorization, linking it to renewal of Trade Promotion Authority (TPA), which Congress may also take up this year. This report discusses the role of TAA in U.S. trade policy from its inception as a legislative option in the early 1950s to its core role as a cornerstone of modern trade policy that many argue has served to promote the long-term U.S. trade liberalization agenda.

When TAA was reauthorized through December 31, 2013 in the 112th Congress, Democratic leaders and the Obama Administration considered TAA a quid pro quo for passage of three implementing bills for free trade agreements (FTAs) with Colombia, Panama, and South Korea. There was, however, considerable partisan debate over the direction TAA should take. Congress had expanded TAA in the American Recovery and Reinvestment Act (ARRA) of 2009 from an earlier version in the Trade Act of 2002. The issue before the 112th Congress was how to craft a compromise TAA bill that would receive bipartisan support in the both houses, and assure its passage along with the three implementing bills. Such an understanding was developed and became part of H.R. 2832, a bill to reauthorize the Generalized System of Preferences (GSP). In an elaborate legislative procedure, both chambers passed the four trade bills on October 12, 2011.

TAA reauthorization in the 113th Congress will likely revive a historical debate over the role of TAA as part of broader trade policy. Legislation introduced so far reflects a status quo extension of existing programs through the end of 2020, including reauthorization at existing levels of $16 million and $90 million, respectively, for the firms and workers programs. Nonetheless, Congress may take up a broader debate on the issue, if history provides any guidance.


Date of Report: August 5, 2013
Number of Pages: 19
Order Number: R41922
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Proposed Transatlantic Trade and Investment Partnership (TTIP): In Brief

Shayerah Ilias Akhtar
Specialist in International Trade and Finance

Vivian C. Jones
Specialist in International Trade and Finance

Congress has the constitutional authority to “regulate commerce with foreign nations.” Thus, it has an important legislative, oversight, and advisory role when trade agreements are being negotiated. The Transatlantic Trade and Investment Partnership (TTIP) is a proposed free trade agreement (FTA) being negotiated between the United States and the European Union (EU). Both sides envision the TTIP as a “comprehensive” and “high-standard” FTA. They seek, among other things, to increase market access through the elimination of barriers to trade and investment in goods, services, and agriculture, and enhance regulatory cooperation. The two sides also seek to use eventual TTIP commitments on the global scene: to advance trade liberalization; set rules and standards; and address challenges associated with the rising economic powers (REPs). The United States and the European Union held the first round of TTIP negotiations the week of July 8, 2013 in Washington, DC. The next round is scheduled for the week of October 7, 2013 in Brussels. 

Congressional interest. Congress has a direct interest in the TTIP, both through influencing the Administration’s positions on issues in the negotiations and considering implementing legislation for any final TTIP agreement for it to enter into force. The 113th Congress may consider the renewal of Trade Promotion Authority (TPA) for the TTIP. Many in Congress support liberalizing international trade, but there are divergent views among Members on the general role and direction of U.S. trade policy, as well as the costs and benefits of trade liberalization. Other Members are skeptical about trade liberalization, arguing that its costs and benefits are not equitably distributed among stakeholders. A transatlantic agreement would also likely have implications for a number of U.S. economic sectors of direct interest to Members of Congress. 

Market access. Average U.S. and EU tariffs are already quite low. However, given the magnitude of the transatlantic relationship, further elimination and reduction of tariffs could yield significant economic gains. Certain aspects of market access negotiations may be controversial, for example, with respect to cross-border data flows. Nevertheless, most observers generally view tariffs as “low-hanging fruit” in the negotiations. 

Regulatory issues. By contrast, regulatory issues are widely regarded by stakeholders as the core of the TTIP negotiations. Economic gains from greater regulatory compatibility could be significant. However, many observers have expressed some skepticism about whether a comprehensive agreement on regulatory issues between the two sides can be reached. There is also debate about whether financial services will be included in the scope of regulatory talks in the TTIP. 

Trade-related rules. Broadly speaking, the United States and the European Union have more in common than differences. For instance, both sides generally have strong protections for investors, intellectual property rights, labor, and the environment. Compared to regulatory talks, negotiations of rules may not be as contentious for the two sides, although certain issues, such as investor-state arbitration and geographical indications may be highly contested. Data privacy issues also may receive greater scrutiny following the publication of classified information related to National Security Agency (NSA) surveillance activity in June 2013. To the extent that the TTIP is used as a vehicle for shaping the global rules-based trading system, debates about certain rules commitments—such as those related to state-owned enterprises and localization barriers to trade—may become more prominent.


Date of Report: July 23, 2013
Number of Pages: 14
Order Number: R43158
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