The Changing Asian Economic Environment and U.S.-Japan Trade Relations

In the last two decades, a group of developing economies in the Asian-Pacific (AP) region has emerged as the most dynamic, rapidly growing economies in the world. This report examines some macroeconomic trends in nine AP economies: Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and China. It explores their importance to U.S. and Japanese trade, how fast and in what direction their economies and external trade are likely to develop, and the implications of these trends for U.S.-Japan trade relations. Among its principal findings, the study shows that (1) the nine economies were insignificant traders in 1970 but have now become major trading partners of the United States and Japan; (2) a fundamental cause of tension in U.S.-Japan trade relations is the overall U.S. trade deficit rather than the bilateral deficit with Japan; (3) projections to the year 2000 suggest that the United States and Japan will remain the two largest economies, but the AP countries are moving up fast; (4) ratios of imports and exports to gross national product for the AP countries rose sharply between 1970 and 1988; and (5) because Japan and the AP countries will be the fastest-growing nations in the next decade, they will be able to absorb a larger share of U.S. exports.