The Rising U.S. Trade Deficit With Japan: Overview and Policy Options

The U.S. merchandise trade deficit with Japan reached $73.9 billion in 1999. It is the largest bilateral deficit with any U.S. trading partner. In addition to the growing deficit in goods trade (with almost all accounted for by trade in machinery and transportation equipment), the bilateral deficit in investment income also has become unusually large so large that it outweighs the U.S. surplus in services trade with Japan. As a result, the bilateral current account deficit $75 billion in 1998 exceeds the merchandise trade deficit with Japan. Options for dealing with this deficit include letting market forces cope with it, raising the value of the yen, opening export markets in Japan, increasing U.S. investments in Japan, and reducing U.S. imports from Japan. This report will be updated periodically.