Economic Report of the President

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THE ISSUE OF U.S. TRADE WITH JAPANThe perception of diminished U.S. competitiveness stems not onlyfrom the U.S. trade deficit but from an impression that U.S. tradeperformance compares poorly with that of other countries, especiallythat of Japan. Japan runs a huge surplus in its manufactures trade,while the United States runs only a small one, and Japan also has alarge surplus in its bilateral trade with the United States. These factsare often attributed to Japanese trade restrictions. Japan does maintainrestrictions which seriously hurt U.S. businesses. Trade restrictions,however, do not in the long run improve the Japanese tradebalance; as discussed more fully below, they lead to offsetting increasesin other imports or declines in exports. The main explanationof Japan's surplus in manufactures trade and in trade with the UnitedStates is that Japan, with few natural resources, incurs huge deficitsin its trade in primary products, especially oil, and with primary producers,especially the Organization of Petroleum Exporting Countries(OPEC). The surpluses in the rest of Japan's trade offset these deficits.Table 3-2 and Chart 3-2 show the differences in the structure ofthe Japanese, European, and U.S. trade accounts. They show clearlyhow the huge Japanese surplus in manufactures offsets large deficitsin primary products.Corresponding to the Japanese sectoral deficit in primary products,especially oil, is a regional deficit with OPEC. Japan makes up for itsdeficit with OPEC by running surpluses in its trade with other regions.The extent of this regional imbalance—and its contrast withthe U.S. position—is shown in Table 3-3. The point here is similarto that already made with respect to the overall U.S. trade balance:looking at Japanese-U.S. trade in isolation is misleading. The Japanesesurplus in trade with the United States is largely a response tothe rise of OPEC.Although Japanese trade policy does not play a central role incausing the bilateral trade imbalance with the United States, Japaneseimport restrictions remain a major source of friction. Japan maintainsa variety of nontariff barriers against imports. These include importquotas for a number of agricultural products and "red tape" barriersagainst manufactured goods, such as stringent inspection requirementsapplied against imported goods but not against Japanese products.These trade restrictions probably do not lead to a larger overallJapanese trade surplus. If they were removed, the yen would depreciateand increased Japanese imports in the currently protected sectorswould be offset by reduced deficits or increased surpluses elsewhere.Japanese trade restrictions do, however, distort the composition ofU.S. trade with Japan, imposing serious costs on some U.S. produc-56
TABLE 3-2.—Trade balances by commodity group as percent of GDP, United States, Japan, and theEuropean Economic Community, 1980[Percent of GDP]Commodity groupUnitedStatesJapanEuropeanEconomicCommunityTotal..-1.45-0.99-2.23Primary products-1.93-10.11-5.41Food, beverages, and tobacco.40-1.26-.41Crude materials excluding petroleum...54-2.15-1.23Mineral fuels-2.87-6.71-3.77Manufactures.489.123.18Machinery and transport equipment....-.423.09.88Other manufactured goods.906.022.30Source: Organization for Economic Cooperation and Development.Chart 3-2Composition of Trade, 1980PERCENT OF GROSS DOMESTIC PRODUCT10| | TOTALPRIMARYGOODSMANUFACTURESi—IHV.'.•'•'v> . ".:-5-10UNITED STATES EUROPEAN JAPANECONOMIC COMMUNITYSOURCE: ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT.57
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CONTENTSPageECONOMIC REPORT OF THE
Page 9 and 10:
ECONOMIC REPORT OF THE PRESIDENTTo
Page 11 and 12: Monetary policy will play a critica
Page 13 and 14: Interest Rates and the U.S. Trade D
Page 15: THE ANNUAL REPORTOF THECOUNCIL OF E
Page 19 and 20: CONTENTSPageCHAPTER 1. FROM RECESSI
Page 21 and 22: PageConclusions 122CHAPTER 6. REVIE
Page 23 and 24: CHAPTER 1From Recession to Recovery
Page 25 and 26: slowed somewhat in the 1970s regard
Page 27 and 28: nal GNP growth is reflected in a sl
Page 29 and 30: inflation. More specifically, the A
Page 31 and 32: inflation rate, or with a 12 percen
Page 33 and 34: 1988, an increase of about one-four
Page 35 and 36: CHAPTER 2The Dual Problems of Struc
Page 37 and 38: frequently associated with poor hea
Page 39 and 40: Chart 2-2Distribution of Unemployme
Page 41 and 42: Chart 2-4Distribution of Unemployme
Page 43 and 44: These findings suggest several conc
Page 45 and 46: Wage RigidityA number of studies sh
Page 47 and 48: that these measures may have caused
Page 49 and 50: Most young people find jobs or leav
Page 51 and 52: to employers who hire youths. Tax c
Page 53 and 54: defined broadly to include individu
Page 55 and 56: ship between incomplete experience
Page 57 and 58: CHAPTER 3The United States in the W
Page 59 and 60: with 2.6 percent in the other Organ
Page 61: TABLE 3-1 .—Structure ofthe U.S.
Page 65 and 66: concentrate on doing what it does r
Page 67 and 68: the United States will depress pric
Page 69 and 70: Chart 3-3Real Exchange Rates Of Maj
Page 71 and 72: AN UNDERVALUED YEN?The explanations
Page 73 and 74: arily reduced the international com
Page 75 and 76: nancial markets. These transactions
Page 77 and 78: TABLE 3-6.—Economic performance b
Page 79 and 80: were undoubtedly a highly favorable
Page 81 and 82: of lenders that some debtors will n
Page 83 and 84: CHAPTER 4Increasing Capital Formati
Page 85 and 86: ate of net investment was required,
Page 87 and 88: able share in Japan and 56 percent
Page 89 and 90: During the 1970s, productivity grow
Page 91 and 92: MEASURING NATIONAL SAVINGDomestic s
Page 93 and 94: TAX RULES AND PERSONAL SAVINGMany e
Page 95 and 96: on consumption taxation might also
Page 97 and 98: Nevertheless, a number of economic
Page 99 and 100: tion permitted businesses to deprec
Page 101 and 102: A final problem under current tax l
Page 103 and 104: fleeted efforts to deal with proble
Page 105 and 106: egulation was probably not applicab
Page 107 and 108: Aeronautics Board, for example, the
Page 109 and 110: system resulted. Price controls, wh
Page 111 and 112: NGPA, both controlled and decontrol
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Price and allocation controls only
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nications industries through the re
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Several major pieces of legislation
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tempt to set cartel rates would be
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computer information and advertisin
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of computer technology to the payme
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trend by widening the sources and u
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changes. That is, members can arbit
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ceived to be a consequence of exces
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lowest point in the post-World War
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ing. Partly in response to the drop
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Chart 6-3Ratio of Consumer Installm
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Chart 6-4RATIO1.85Real Inventory/Sa
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percent increase in real defense pu
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8.8 percent in 1981. These declines
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housing. Borrowing by the nonfinanc
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orous competitor for credit as usur
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1982 their share had risen to over
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TABLE 6-9.—Economic outlook for 1
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A critical element in achieving hea
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Report to the President on the Acti
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ety of interagency and internationa
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ence J. Kotlikoff (Yale University)
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CONTENTSNATIONAL INCOME OR EXPENDIT
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B-70. Mortgage debt outstanding by
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross national product
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19291933193919401941194219431944194
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TABLE B-5.—Changes in GNP and GNP
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TABLE B-ll.—Gross national produc
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TABLE B-13.—Output, costs, and pr
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TABLE B-14.—Personal consumption
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TABLE B-16.—Gross and net private
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TABLE B-18.—Inventories and final
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TABLE B-20.—Relation of national
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TABLE B-21.—National income by ty
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TABLE B-22.—Sources of personal i
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TABLE B-24.—Total and per capita
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Year or quarterTotalTotalTABLE B-26
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-29.—Noninstitutional popu
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TABLE B-31.—Selected employment a
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TABLE B-33.—Civilian unemployment
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TABLE B-35.—Unemployment by reaso
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TABLE B-37.— Wage and salary work
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TABLE B-39.—Average weekly earnin
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TABLE B-41.—Changes in productivi
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TABLE B-43-—Industrial production
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TABLE B-45.—Capacity utilization
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TABLE B-46.—New construction acti
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TABLE B-48.—Nonfarm business expe
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TABLE B-50.—Manufacturers' shipme
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Year or monthAllitemsPRICESTABLE B-
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TABLE B-53.—Consumer price indexe
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TABLE B-55.—Changes in consumer p
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TABLE B-57.—Producer price indexe
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MONEY STOCK, CREDIT, AND FINANCETAB
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TABLE B-63.—Commercial bank loans
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TABLE B-64.—Total funds raised in
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TABLE B-66.—Aggregate reserves of
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TABLE B-67 .—Bond yields and inte
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TABLE B-69.—Consumer installment
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TABLE B-71-—Mortgage debt outstan
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TABLE B-72.—Federal budget receip
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TABLE B-74.—Relation of Federal G
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TABLE B-76.—Federal Government re
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TABLE B-78.—State and local gover
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TABLE B-80.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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Year or quarterTABLE B-84.—Corpor
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TABLE B-86.—Relation of profits a
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TABLE B-88.—Determinants of busin
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TABLE B-9Q.~Current assets and liab
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TABLE B-92.—Common stock prices a
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AGRICULTURETABLE B-94.—Farm incom
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TABLE B-96.—Farm input use, selec
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TABLE B-98.—U.S. exports and impo
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INTERNATIONAL STATISTICSTABLE B-100
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TABLE B-101.—U.S. international t
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TABLE B-103.—U.S. merchandise exp
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TABLE B-105.—International invest
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TABLE B-107.— World trade balance
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TABLE B-109.—Growth rates in real
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TABLE B-lll.—Unemployment rate, a
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Economic Report of the President

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