Their continuation could jeopardize the entire relationship despite all the progress on other topics. Moreover, the current economic debate is of a somewhat different nature than in the past. Macroeconomic policy and exchange rates have been an element in previous squabbles, to be sure, especially in the early and late 1970s. These traditional sources of friction, while not absent from the current fracas, are distinctly secondary. The United States has two main motives for pushing Japan so hard on these fronts.
Japan accounts for two thirds of the entire economy of Asia.
There are enormous risks to the world economy as long as Asia festers and the United States correctly sees Japanese recovery as a necessary component of resolving that key problem. 1 Second, Japan's current economic position and outlook will generate substantial costs to the economy of the United States itself and hence to the overall relationship between the two countries. To be sure, in light of the strong performance of the American economy, there have been short-run benefits to the United States from the sharp rise in the value of the dollar and the expansion of our trade deficit. These developments have helped dampen inflationatory pressures, permitting us to reduce unemployment for far below the level that most economists had believed was acceptable with price stability. However, we know from the sad history of the past thirty years that the present situation poses several severe threats to the two countries and to the relationship between them.