The past two decades have witnessed extensive bilateral trade negotiations between the U.S. and Japan. Known as the Structural Impediments Initiative (SII), these negotiations focused on “the barriers inside the Japanese and U.S. economies that impeded international flow of goods and services” (Fauver and Stewart, 2002, A9). While the U.S. and Japan have traditionally clashed in terms of trade with respect to automobiles, electronics, and steel, today the two countries seldom go toe-to-toe in the same industry. One of the reasons for this is that the U.S. has gained competitive advantage in many high-tech electronics products, from software to computer chips. Another reason is that even though Japan has created a tremendous impact on the U.S. auto industry, Japanese investment in the U.S. because of it is a boon to the economy, “For years the Japanese have been plowing profit back into the U.S., where they collectively built 2.4 million cars and trucks in 2001” (Guth, Phillips and Hutzler, 2002, A1). While the high yen against the U.S. dollar gave Japan competitive advantage for years, this is no longer the case. Japan’s economy is in the last throes of a slow dance of death, with a declining yen, an unstable and a banking system in danger of collapse. Yet world trade patterns have changed significantly over the past two decades and despite the Bush Administration’s tariffs on steel, farm subsidies, and other barriers to trade the economies of both countries are less dependent on one another than in the past.
The U.S. economy experienced robust growth during the Clinton Administration only to decline into recession during the first part of the Bush Administration. Recently, however, all indicators point to an end of recession and the beginning of steady growth. The International Monetary Fund (IMF) predicts the U.S. will grow 2.3% this year, up more than double from 2001 (Guth et al., 2002, A1). In Japan, the o...