Introduction

The United States and Japan are the two largest economies in the world. Both countries experienced the inflationary consequences of the oil price shocks of the 1970s, both national governments have large deficits, and both have been considering or enacting major tax reforms. The growth rate of the Japanese economy continues to be the envy of the rest of the developed world, despite the fact that Japan has suffered many of the same external economic shocks as the other countries.

There are numerous important economic issues that involve the United States and Japan and their interaction. Considerable trade friction has developed between the two countries as a consequence of the large current- account deficit of the United States, the trade surplus of Japan, and, most directly, the bilateral trade surplus of Japan. A widely debated issue is whether the trade imbalance is due to Japanese trade restrictions or due to the imbalance of U.S. fiscal policy.

The trade frictions between the United States and Japan have perhaps been most severe in the microelectronics industry. One issue regarding that industry is whether Japan has been dumping integrated circuits on world markets or is simply more cost-efficient in producing them. Certainly, Japan has proved to be a tough competitor in that market, as in so many others.

There are many important economic issues that concern government policies toward industry in the United States and Japan.