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Though Japan once rested in centuries of isolationist policies, it has emerged in the marketplace as one of the strongest and most influential nations. Japan underwent significant economic growth, integrated itself into the world market, and its current relations with the United States is very advantageous. Both Japan and the US are very similar countries – they are the home to very large, industrious, developed economies. The majority of exports from Japan to the US are currently passenger cars, machinery, and their parts. Since the 1980s, the US has remained the single largest source of FDI for the Japanese (Cooper).
Pressure from the US for Japan to be more open to trade is nothing new. For over 250 years, Japan had practiced a policy of isolationism- cutting off all economic or political ties from any other countries. It was not until 1853 that Commodore Perry arrived in Tokyo with American ships and forced open the gates of Tokyo ports to the rest of the world. The Americans then entered into a trade agreement with the Japanese in which Americans kept a stronghold on the upper hand.
Growth in trade relations with Japan had been modest for about a century, but pressure for free trade from the Americans continued nonetheless. By the 1950s though, the Japanese started to feel a push in the opposite direction. First with the textile industry, and then onto more manufactured goods such as automobiles and electronics. Japan began to be accused of dumping, and ultimately antagonized themselves in the eyes of the American industry. At this point though, most negotiations were voluntary restraints of exports on the Japanese side. Any formal trade negotiations were very product specific (Wilkins). An example of this is the 1977 Orderly Marketing Arrangement that limited the Japanese export of color televisions to the United States.
Japanese companies ultimately needed to branch out in order to find new sources of income to support their growing market. However, the rapid growth of the Japanese market presence in the US around the mid 1900s was soon followed by negativity and resistance. Strong consumer demand for Japanese goods by Americans left the US at a $40 billion trade deficit, and American businesses began to fear that Japanese competition would challenge America’s global economic superiority. Further, SONY’s acquisition of Colombia Pictures Entertainment and CBS records alongside Matsushita’s purchase of MCA/Universal started to foster hostility and anxiety. People saw these expansions as invasions that put the American economy at risk (Lutz).The 1980s was the beginning of formal trade agreements with the United States that addressed the growing tension. The US started practicing protectionist measures against Japanese industries in an attempt to keep domestic companies safe from the growing Japanese economy. Policies were put in place to address the resentment toward Japan’s trade surplus in the United States. Sector specific agreements such as the MOSS Act kept American pharmaceutical exports and some telecommunications products safe. The resistance was further addressed when the US deemed the Japanese an “unfair trading nation” in 1989 in part of the of the Omnibus Foreign Trade and Competitiveness Act.
The formation of the WTO (World Trade Organization) in 1995, led to increased accessibility to Japanese markets for U.S. products. However, at the time the Japanese economy was on the decline and Japanese exports to the United States began to decrease as well. Despite this decline though, Japan was still able to remain America’s 4th largest trading partner. This ultimately led to a more harmonious trading balance between the two countries. Fears of a Japanese takeover subsided and Japanese companies were no longer viewed as much as an enemy (Lutz).Over the past decade, Japanese trading strategies have shifted toward trying to implement a Free Trade Agreement (FTA) with the United States. The US currently has an FTA in place with two of its neighbors – Singapore and Australia. These efforts by the Japanese are in large part an attempt to reboost the Japanese economy and become more competitive with rivals like China. An FTA would increase their political role East Asia and ensure that they will not be left out economically. They would have more power in negotiations and gain a larger political influence through trade power. The largest obstacle standing in the way of a FTA between these two countries is the highly protected Japanese agricultural sector. Rice and beef are two products that Japan is reluctant to loosen protection on. Japan enacated their first FTA with Singapore in 2002 and more recently with Mexico. However, an FTA with the US is still up in the air (Ahearn). Luckily, a bilateral economic relationship is currently the focus of Japanese US economic agendas.
For a detailed explanation on all the major Japanese – US trade agreements, click on the following links: