Reconcilable Differences? United States-Japan Economic Conflict.

• Author: Garman, M. Christopher

3. Fred Bergsten and Marcus Noland. (Washington, DC. Institute for international Economics, 1993) 271pp. Reviewed By M. Christopher Garman

Frictions resulting from the U.S. trade deficit with Japan dominate relations between the two countries and show no signs of abating. The stakes are enormous: Japan is the United States's largest trading partner after Canada; it is currently the world's largest market for a number of high technology goods; and U.S. and Japanese output constitutes 30 to 40 percent of total global production. With the demise of the Cold War, these trade frictions have grown in intensity, while U.S. security interests in Japan have diminished. Fundamental changes in U.S.-Japanese trade relations are taking place, and academic studies of these changes abound.

Analyzing the U.S. trade deficit with Japan is like trying to subdue the Hydra. When one theory goes out of fashion or is empirically disproved, two sprout in its place. Political explanations wrestle for print space with cultural and economic explanations, and the policy dialogue is drowned out in the din. Often, U.S. rhetoric concerning the massive Japanese trade surplus is not well-rooted in economic theory. On the other hand, purely academic and economic analyses often take too sanguine a view of what are politically charged policy considerations.

Assuming the Herculean task of synthesizing these approaches is a timely book from the Institute for International Economics in Washington, D.C. Reconcilable Differences, co-authored by the institute's director, C. Fred Bergsten, and Marcus Noland, a visiting scholar at IIE and senior economist at the Council for Economic Advisors, is a tour de force of economic rigor tempered by pragmatic policy considerations.

The authors seek to accomplish two things: explain and empirically critique theories about what is causing the ongoing U.S. trade deficit with Japan, and extrapolate policy options for trade-deficit reduction based on their theoretical findings. On both counts, Bergsten and Noland succeed admirably. Their prose is direct and accessible to those students who are unacquainted with international trade theory, but their studies are nonetheless methodologically rigorous and valuable to the sophisticated reader.

The authors' inquiry begins with a macroeconomic analysis of trade relations between the United States and Japan. They ascribe much of the explosive growth of the Japanese trade surplus in the mid-1980s to a...