From: jcliu@four-lab4.Berkeley.EDU (James C. Liu)
Newsgroups: soc.culture.japan
Subject: Re: DOES AMERICA SAY YES TO JAPAN? - Off track!!
Date: 24 Dec 1992 06:57:24 GMT
Organization: UC Berkeley Dept. of Nuclear Engineering
NNTP-Posting-Host: four-lab4.berkeley.edu

In article <1992Dec19.000030.9064@informix.com> proberts@informix.com 
(Paul Roberts) writes:

  >I can see that there is lots of enthusiasm for America getting what it 
  >wnats in the world by sheer bullying, but doesn't it occur to you that
  >this tactic works well only against weak countries?
  >
  >What do you do when Japan responds to your 10%, 10%, 10% tariffs by
  >failing to show up to one month's T-bill auction, and the US immediately
  >goes bankrupt?

The immediate effect of tariffs on Japanese products will be inflation
in the U.S.  The Japanese will try to counteract by lowering prices but
basically consumption of Japanese products will decrease and so will 
Japanese revenues.  Should the Japanese decide to retaliate by not buying 
T-bills, then this will force the Treasury to up interest rates to generate
the demand.  Both inflation coupled with higher interest rates is
recessionary and results in a lowered standard of living for Americans.
However, on the Japanese side, their revenues from export drop further
because not only are their products more expensive in America due to the
tariff, but the resulting recession erodes consumption.  Japan then also 
suffers from a recession.

To compound things further for Japan, failure by any big holder of U.S. 
funds (Japan included) to buy up these bonds at the auction in essence 
devalues the dollar on world markets, because the U.S. is forced to up
interests rates so high that in order to provide enough capital to 
finance its own debt internally, the FED prints more money.  The 
devaluation of the dollar relative to other currencies makes American 
products cheap overseas and the US becomes a net exporter.  This in all
likelihood further erodes Japanese marketshare in exports.

The U.S. will not go immediately bankrupt because simply, the U.S.
dollar is the world standard and the U.S. can always inflate itself out
of debt at the cost of lowered standard of living.  What gives the U.S.
this dominance is several factors:  1) the US has lots of its own natural
resources, 2) the US is the largest consumer and 3) the US has a strong
military.  Japan does not have any of these.  

This is not to say that I support tariffs as a first means of rectifying
trade.  On the contrary, I only support symmetric barriers as a last resort,
because the negative consequences to both the U.S. and Japan's economies.

As this thread is getting old and worn and there isn't much use in
discussing economics with two polarized groups, one pro-bash Japan, one
hapless-happy-go-lucky-love-Japan-US, well, I think it's time to go
sing a few good songs over some warm sake.

Kurisumasu Omedetou, James
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Newsgroups: soc.culture.japan