The U.S. Japan Trade Imbalance from the Japanese Perspective

Ryuzo Sato

No 2479, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: By 1981, Japan achieved both internal and external equilibrium; exports and imports roughly balanced at sixteen percent of the gross national product. However, within the country, there was concern that the growth in the government, accompanied by raising budget deficits, would make it impossible for the economy to cope with a future crisis similar to the oil price shocks of the seventies. The Chairman of Keidaren, Mr. Doko, called for a 'philosophy of preservance' requiring government austerity and individual sacrifice. The expected crises never occurred but the policies followed led to a balance of payment surplus. Scientific studies to determine the exact sources of these imbalances are few but indications are that forty percent of the gap was due to differences in growth in demand at home and abroad, thirty percent due to differences in the elasticity of import and export functions and thirty percent due to movement in the exchange rate. It is argued that political and economic frictions arise when it attempted to treat the symptom without reforming the fundamental structure. Proper strategies can convert the 'Zero-sum game' to a 'positive-sum' game.

Date: 1988-01
Note: ME
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