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%
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
Price: $29.95
To Order:
For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Posts
