Introduction

Japan in the 1950s through the 1990s and the People's Republic of China (PRC) since the late 1970s have followed similar—and similarly successful—strategies of promoting economic growth through rapid acquisition of advanced foreign technology and expansion of manufactured exports. While other Asian countries have done likewise, in some cases with exports growing as rapidly and for as long, Japan and the PRC have presented special challenges to the General Agreement on Trade and Tariffs and the World Trade Organization (GATT/WTO) trading system because their shares of world exports have been so large and the associated bilateral trade imbalances with the United States (US) so conspicuous. In both political and economic terms, these large imbalances seem to contradict the GATT/WTO principle of reciprocity, which involves a balance of market-access concessions across major players in the system.

During their respective periods of rapid export growth, both Japan and the PRC accounted for a major share of total world exports. As of 2007, the PRC's share of world merchandise exports had soared to 8.9%, less than Germany's 9.7% share but topping the US share of 8.5% as well as Japan's 5.2%, in each of the latter three cases from a much larger economy (WTO 2008a). Given the sharp drop in global import demand following the 2008 onset of the global financial crisis, the PRC may not surpass Japan's 1980s peak of around 10%. However, US imports from the PRC in 2008 (US$337.8 billion) still exceeded their level in 2007 (US$321.5 billion); the 2008 bilateral trade imbalance (US$266.3 billion) also exceeded 2007's record figure, although only by US$10 billion (Morrison 2009; Table 1).¹

Unlike the principles of most favored nation treatment (Article I) and national treatment (Article III), there is no “Article” of the GATT 1947 clearly identifying reciprocity as a GATT principle. However, the Articles that govern how countries renegotiate concessions—in particular Articles XXVIII and XIX—do contain explicit language about reciprocity, and the GATT/WTO practice of reciprocity has typically resulted in a balance of market-opening concessions across the major players in the system.² But when large economies such as Japan and the PRC pursue an export-led growth strategy, the resulting increase in exports disturbs the initial “balance of concessions” (i.e., the reciprocal market-access outcome). The major trading partners that receive the increased exports then seek ways to rebalance the bargain.³

This paper examines the policy responses of the US to the export-led growth strategies of Japan and the PRC and the associated bilateral imbalances. We begin in Section 2 by considering some relevant features of the two episodes, identifying similarities and differences. We then examine how the US has responded to bilateral imbalances with Japan and the PRC, treating not only the “symptoms” (rapid import growth from the relevant partner and slow export growth to that partner), but also the underlying causes of the imbalances as perceived by US officials. In the face of a large bilateral trade deficit, the US has used trade policy to treat the symptoms directly (i.e., to slow the partner's export expansion into the US market and to speed up US exporters' expansion into the partner's market). Section 3 compares US policy measures intended to slow Japan's expanding exports to the US in the 1970s–1990s and the PRC's expanding exports since the 1990s. Section 4 describes US efforts during the same periods to promote US export expansion into the import markets of Japan and the PRC. Sections 3 and 4 also show how US efforts to treat the symptoms may have influenced the evolution of the rules of the international trading system under the GATT and WTO Agreements.

The second half of the paper examines underlying causes of the bilateral trade imbalances as perceived by US officials and the public, US policy approaches implemented with respect to Japan and the PRC to address some of these causes, and the resulting implications for the rules of the trading system. In Section 5, we examine the bilateral trade imbalances at the industry level; we focus on US policies based on the premise that such imbalances are due to a competitive advantage unfairly created by foreign (Japanese or PRC) policies (e.g., industrial policy, explicit and implicit government subsidies, and currency manipulation). In Section 6, we examine the bilateral trade imbalances from a broader macroeconomic perspective. This perspective helps to explain the end of the US-Japanese bilateral imbalance episode in the 1990s, and may also speak to the resolution of the US-PRC bilateral imbalance. Section 7 concludes the paper.

Our purpose in the paper is to describe actions taken by the US and interpret them in terms of the role played by reciprocity in theories of the GATT/WTO as a self-enforcing agreement. The paper is thus intended to be descriptive and analytical, not normative. While we characterize certain US policies as “targeting” Japanese or PRC exports, we do not attempt a systematic evaluation either of the effectiveness of these policies in achieving their objectives or their consistency with national laws and international agreements. Likewise, we do not attempt a systematic evaluation of the effectiveness of Japanese and PRC industrial and macroeconomic policies in promoting economic growth or their conformity with international agreements.

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