U.S.-Japan trade : get smart, not just tough

Abstract

The latest U.S.-Japan trade dispute and the shuffle in Japan's top leadership should not divert U.S. attention from the need to design a new trade policy toward Japan. A "get tough" policy driven by disputes involving specific industries is not enough; the United States also needs a "get smart" approach more focused on resolving fundamental trade imbalances and pushing for growth and deregulation in Japan. Japan must be encouraged to take strong measures to stimulate domestic demand in order to change the driving force behind its economy from exports to domestic consumption. The United States should entrench itself in Asia, working for economic integration through the Asia-Pacific Economic Cooperation (APEC) forum and forging a link between Asia and the new North American Free Trade Agreement (NAFTA)-possibly by allowing Asian countries to join NAFTA. Finally, the United States must put its own economic house in order by rekindling productivity growth and narrowing the gap between incomes, rewarding small and high-tech entrepreneurs, and removing disincentives to exports.