Why do we have a trade deficit with Japan?

A viewer asked this question on 2/14/2000:

What are the consequences of not maintaining a balance of trade in the international marketplace.

Can you tell me what the U.S. does to try to maintain the balance of trade in the international market place.

budgetanalyst gave this response on 2/14/2000:

I assume you mean maintaining a positive balance of trade rather than a negative one, which the United States currently has.

The ultimate consequence is that the currency loses value, and/or interest rates go up. In either case, things become more expensive, which may lead to inflation.

The U.S. has an active trade encouragement program, involving trade delegations, trade incentives, and actively tying various support programs to the purchase of U.S. goods. These programs have resulted in increased agricultural and military sales. The U.S. also energetically uses trade negotiations to open markets (such as those of China). In addition, the U.S. has a lukewarm energy efficiency program, which has mixed results; energy (in the form of oil) is one of the main imports, so energy conservation reduces imports and improves the balance of trade.

I hope this helps.

A viewer asked this follow-up question on 2/14/2000:

Thank you for your quick turn-around. Can you tell me why we are not successful in maintaining a positive balance of trade with Japan.

budgetanalyst gave this response on 2/14/2000:

There are reasons related as to why we cannot sell there, and reasons as to why we buy there. We have difficulty selling goods and services in Japan, and we love buying goods from Japan.

The reasons why we cannot sell there are that the Japanese have internal social and economic controls, such as the maintenance of Mom-and-Pop shops, that defeat American marketing systems. Their land-use practices also hinder housing development - people simply do not have space for goods, so they don't buy them. In addition, given that the Japanese make some very good products, there is an actual fair competition problem, i.e., we cannot beat them in some things. So we are kept out unfairly and fairly.

The reason we buy Japanese is that the Japanese make very good products, which are in high demand.

This has not always been the case. The balance of trade with Japan started to shift significantly in the 1970s, and this was in part due to United States policies, aimed at encouraging the Japanese economy (as a defense against China and Russia) and keeping Japan from having to maintain a large defense establishment. The U.S., even today, carries the bulk of the burden for Japanese defense. This keeps the Japanese from having to spend on defense, making more capital available for commercial activities. The converse happens in the U.S. - defense expenditures keep resources away from the civilian economy. This situation is slowly changing, but it takes time to make up for 40 years of running a highly militarized economy that provided for the defense of much of the world.

Jesse Gordon responded:

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