U.S.-Japan Trade Relations in Telecommunications Equipment Markets

by Leland Johnson

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The U.S. telecommunications trade deficit with Japan has risen during the last decade, and some have alleged that Japan has engaged in "one-sided" trade and "unfair" competition. With a time frame starting in the late 1970s, this study addresses two overarching questions: How are trade relations between the two countries being affected by changes in the market structure and technological advances? In light of those changes, are trade tensions in the future likely to be more serious or less so than in the past? The authors single out changes in market structure and technological advances because of their prominence in telecommunications. Both the United States and Japan have experienced a shift from monopoly toward competitive markets; technological advance is strikingly illustrated in the emergence of cellular telephones, high definition television (HDTV), and other services. This study looks at case studies of wireline telephone equipment, comparing the evolution of AT&T and Nippon Telegraph and Telephone (NTT); cellular telephone equipment; and HDTV. Although the evidence is mixed, this study suggests that trade tensions will be less severe in the future than in the past. Foreign participation in ownership of Japanese corporations and the continued growth of multinational firms may help to improve trade relations. At the same time, optimism must be tempered with caution. A possible source of future trade tension is that HDTV flat panel manufacturing may take place in Japan rather than in the United States. This could trigger demands for protection of a U.S. flat panel industry to assure U.S. access to "critical technologies" for widespread commercial and military applications. Disputes may also arise about the mutual benefits of joint ventures among multinational firms if, for example, Japanese firms are perceived to be benefiting from U.S. technology on a largely one-way street. Finally, although enhanced market accessibility may, on balance, reduce trade tensions, no simple positive relationship exists between the two.

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