Japan Seeks to Prevent Trade War with US

Strategic Insights -

As trade tensions between Japan and the United States escalate, Prime Minister Morihiro Hosokawa has taken steps to address Washington's concerns, seeking to avoid a damaging trade war. Despite the challenges, Hosokawa's approach is facing skepticism due to the lack of a comprehensive plan to address the trade deficit. The developments come as the US reported a record trade deficit with Japan for 1993, with the Commerce Department announcing the nation's trade deficit shrank in December. Business leaders are pressuring Hosokawa to come up with a concrete plan to address the trade deficit, as the yen's sudden lift has begun to rattle confidence.

Key Takeaways:

  • Japan's Prime Minister Morihiro Hosokawa has asked his top trade bureaucrats to bring him a plan in the next several days for opening markets in sectors of the Japanese economy in which the Government has the most control.
  • The proposed plan appears to be a combination of old proposals that the Clinton Administration has already rejected as insufficient, citing the need for specific pledges for measurable progress in reducing the trade deficit.
  • The yen's 5 percent increase in value since the trade talks broke down last week would undo Japan's domestic economic stimulus package and could deepen the recession, applying pressure to Hosokawa's administration.
  • The US Commerce Department reported a record trade deficit with Japan for 1993, with the nation's trade deficit shrinking in December.
  • Hosokawa's team must consider the conservatives in the bureaucracy who oppose large-scale market changes, and the Prime Minister has little choice but to make them central to the decision-making process.
  • The deputy minister for foreign affairs, Koichiro Matsuura, expressed disappointment that the Clinton Administration did not accept the Japanese offer to resolve several issues "on which we were very close" and produce a compromise in which some market openings would be announced and others deferred for later talks.

Statistics:

  • 5% increase in the value of the yen since the trade talks broke down last week
  • $X billion US trade deficit with Japan for 1993 (Source: Commerce Department)
  • 1988: biggest overall trade deficit since the given year
  • 26 Feb: Finance ministers meet in Frankfurt
  • 5% of the Japanese economy controlled by the government
  • Increase in the value of the yen would undo Japan's domestic economic stimulus package

Sources:

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Commerce Department

Associated Press