A New Beginning

Overview

President George W. Bush should challenge his Japanese counterpart to launch a joint initiative to create a U.S.-Japan “open marketplace”--free of tariffs, with minimal regulatory impediments, and an increasing freedom to do business--by the year 2010, argues Bruce Stokes in A New Beginning: Recasting the U.S.-Japan Economic Relationship.

The time is ripe for a bold new initiative to shape the U.S.-Japan economic relationship. The Bush administration will be working with a new U.S. Congress. A new Japanese government is in place. At the same time, the Japanese economy is struggling to emerge from its decade-long economic doldrums. And the American and Japanese economies are slowly integrating through bilateral foreign investment and trade growth.

Washington and Tokyo must seize this moment, Stokes contends. U.S. willingness to resolve mutual problems in a creative fashion, dependent on America’s continued economic good fortune, could turn sour in an economic downturn. Already, the U.S. trade deficit with Japan has never been higher. And the recent surge in U.S. investment in Japan is likely to result in a host of new bilateral problems as U.S. firms try to operate “inside the castle” of the Japanese economy. Moreover, Japan’s commitment to economic liberalization is tenuous at best. A more vibrant Japanese economy has a limited time to take root before the crushing weight of Japan’s mounting public debt and the burden of its aging and shrinking population foreclose its options.

A new, proactive U.S. policy toward Japan is needed to maximize the potential of the U.S.-Japan economic relationship and to cope with the inevitable problems in day-to-day ties between the world’s two largest economies. According to Stokes, the cornerstone of this new American economic posture toward Japan is the creation of a U.S.-Japan open marketplace by 2010. To further that goal, the next U.S. administration should press the Japanese government to restore economic growth and accelerate restructuring, expedite deregulation, strengthen competition policy, and reform corporate governance.