Question

what is the role of trading system between Japan, china and US.

Answer 1

The role of trading system between Japan, china and US:

The U.S.-Japan Trading Relationship and Its Effects :

• The historical relationship between the United States and Japan since 1945 has always been one-sided. Since World War II Japan has tended to assume that it was (at least in security terms) a dependent partner of the United States. From that standpoint, Japan could be a "free rider" on U.S. security and foreign policy protection and largesse. Equally and oppositely, the United States has generally believed that because Japan was dependent, it did not need to be consulted about matters of global security and high policy.
• It could be asked to participate in U.S. and United Nations peacekeeping and peacemaking endeavors after the fact. The United States could concert with other nations, Russia and the European allies, and then ask Japan to help pay for the operations that had been agreed upon. Both of these assumptions obviously represent inappropriate responses to the changed relationship between the two countries. The future success of the U.S.-Japan relationship requires mutuality and reciprocity of interests and symmetry of behavior that have not yet been fully understood, and certainly not acted upon, by either partner.

1. THE GROWTH OF THE TRADING RIVALRY :

• The origins of the U.S.-Japan tension over trade are relatively recent in character. The essential problem that the Japanese economy presents to the world trading system is that the economy operates with too high a level of national savings.' This means that Japan cannot consume the produce of its own industry, and consequently, this produce has to be sent abroad as exports. This was not a major problem in the 1960s and early 1970s, because during those times, high Japanese private investment absorbed national savings. Private corporations bought investment goods, new capital, and equipment, and the failure of private and government consumption did not matter. Japanese productive capacity was fully utilized in making new machines. There was, as a result, no significant Japanese trade surplus. The situation changed in the mid- to late 1970s and early 1980s. At that time, private investment spending declined, but it was replaced by high government spending. Government purchases absorbed Japanese savings. Low consumer spending (high savings) presented no problem because the government purchased large amounts of goods. Again, there was no large Japanese trade surplus.
• The problem grew greatly in 1984, however, when the Japanese government reduced its deficit spending, and business did not take up the slack by increasing investment, as it had done in the 1960s and early 1970s. From the mid-1980s on, therefore, Japan no longer consumed the produce of its own industry, and this produce then had to be sent abroad as exports. At that point, the high level of Japanese savings (and the correlatively low level of Japanese consumption) created problems for the nation's trading partners. This was the beginning of the problem of persistent imbalances in the Japanese trading account with the United States and other countries.

II. "SHARKS AND FISHES"?

The problem that the United States currently faces is to turn around the trading deficit. The overall Japanese merchandise trade deficit may reach $160 billion in 1993-94.6 This will present problems for other countries, as well as for the United States. The situation is analogous to that depicted in the "Sharks and Fishes" computer game.7 In that game, the objective is to maintain ecological balance between populations of sharks and fish. It is assumed that fish live on abundant plankton and sharks live on the fish. Players are then asked, at the outset of the game, to choose the number of sharks and fish, the life spans of the two species, and the breeding and feeding times of the sharks and fish. With these selected, the computer begins its iterations, with the populations of sharks and fish oscillating over time. Frequently after about 4,000 iterations, the sharks consume all the fish, but then, as a result, the sharks also die, and the game comes to an end. This game presents a morality tale for the United States and Japan. It makes it clear that if the U.S. market is going to serve as the continued sustenance for Japanese industry, it must be allowed to grow rapidly enough to regenerate itself. If U.S. industry does not sell enough, either domestically or abroad, U.S. incomes will fall to levels that will not sustain large Japanese exports to the United States. Then Japan and the United States will both lose.

III. THE U.S. AGENDA :

• Of course, there is much the United States must do to redress its part of the trade imbalance. Obviously, it must cut its government deficit (which was over $290 billion in 1992),8 and it should seek to increase its household savings rate, which has been hovering between three and five percent of the gross national product (GNP). If household savings rose, the pool of investible funds would increase and the government deficit (which trenches upon these funds) would be less worrisome. For example, in the late 1970s, even though Japanese government deficits reached five percent of the GNP (about the same percentage as the current U.S. figure), there was no huge trade deficit because Japanese private savings more than made up for the shortfall in public funds. Japanese consumers restrained consumption even when the government failed to do so

IV. THE JAPANESE AGENDA

• A solution to the trade imbalance would also require Japan to recirculate the surpluses it has gained. Axiomatically, Japanese exports are balanced by short term borrowing in the United States and foreign money markets. In a schedule sense, equilibrium could be maintained by Japan cutting its borrowing abroad, but this would not solve the long term problem. A solution to this more fundamental imbalance involves recirculating the surpluses in a more permanent way. A major systemic balancing issue is involved here, and all past financial hegemons have faced it. In the nineteenth century, Britain recirculated the surpluses it had gained in trade by investing and loaning money to trading partners. But these investments had to be financed, and the loans had to be repaid. By 1910, Britain had enabled all its debtors, except India, to repay loans by running a trade surplus in the British home market. One after another, Germany, the United States, Canada, Australia, New Zealand, and South Africa gained surpluses in trading with Britain

V. LONG TERM HARMONY BETWEEN THE UNITED STATES AND JAPAN?

• But the long term looks much more harmonious, for political-military as well as trading reasons. From a traditional balance of power standpoint, the tension between the United States and Japan will ebb as China becomes a more significant world actor. The pressure on two feuding countries to compromise their differences because of a rising third power did not occur between 1910 and 1914. Germany and Britain were not brought together by the rise of either Russia or the United States. The United States turned out to be at best an episodic participant in world and European politics, and Russia, after the 1917 revolution, was isolated. Given the United States' preoccupation with hemispheric affairs in 1914 and its return to "normalcy" in 1920, foreigners recognized that U.S. power could not be used as a threat to bring cooperation between Germany and England. Nor, despite Chamberlain's wish for an anti-Soviet group, did Soviet Russia serve as a catalyst to bring feuding Europeans together

VI. GLOBALIZATION, COMMERCE, AND DEMOCRATIZATION

• This does not mean that the world does not have myriad problems ahead of it in the short term. The G-7 has been a failure. GATT negotiations have been derailed and may not get on track again. French opposition to an agricultural agreement to reduce surpluses remains strong. Economic conflict among the major trading partners is rising. Economic imbalances are increasing, not diminishing. It is still uncertain whether either the Japanese or U.S. political systems will be strong enough to make the necessary but tough decisions to reform, economically and politically. Japan will be asked to change its policies in major ways and a government in Washington that no longer is dominated by either free market or "security comes first" advocates will have to press Congress and the people of the United States to achieve reforms at home.

U.S.–Japan and U.S.–China trade conflict :

• Japan in the 1950s through the 1990s and China since the late 1970s have followed similar – and similarly successful – strategies of promoting economic growth through rapid acquisition of advanced foreign technology and expansion of manufactured exports. While other Asian countries have done likewise, in some cases with exports growing as rapidly and for as long, Japan and China have presented special challenges to the GATT/WTO trading system because their shares of world exports have been so large and the associated bilateral trade imbalances with the United States so conspicuous. In both political and economic terms, these large imbalances seem to contradict the GATT/WTO principle of reciprocity, which involves a balance of market-access concessions across major players in the system.
• During their respective periods of rapid export growth, Japan and China each accounted for a major share of total world exports. As of 2007, China’s share of world merchandise exports had soared to 8.9%, less than Germany’s 9.7% share but topping the U.S. share of 8.5% as well as Japan’s 5.2%, in each of the latter three cases from a much larger economy (WTO, 2008b). Given the sharp drop in global import demand following the 2008 onset of the global financial crisis, China may not surpass Japan’s 1980s peak of around 10%. However, U.S. imports from China in 2008 ($337.8 billion) still exceeded their level in 2007 ($321.5 billion); the 2008 bilateral trade imbalance ($266.3 billion) also exceeded 2007’s record figure, although only by $10 billion