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Protectionists, on the other hand, argue that free trade is a fine theory but it is not the real world. They claim that at any given time trading nations are subsidizing production costs, stopping imports by stealth and off- loading their own products on less sheltered trading partners. The strongest protectionist argument is that industries may need either temporary or permanent help in combatting such unfair competition, usually in the form of % trade restrictions. The biggest problem with the argument is that temporary help often turns into the kind of permanent dependence that fosters stagnation.
The protectionist argument is flaring up anew because of Japan's phenomenal success. After only 30 years of aggressive, imaginative but often highly protected industrial growth, the Japanese are the prodigies of the industrialized world, reveling in a trade surplus of $83 billion in 1986 alone. Says Robert Hormats, a partner in the Goldman Sachs investment house and a former trade adviser to the Carter and Reagan Administrations: "No country in history has ever gained international wealth as fast as Japan." Many economists estimate that the accumulated Japanese balance of payments surplus could reach anywhere from $500 billion to $1 trillion by the year 2000. The Japanese, like the OPEC nations in their heyday, are already investing their current surplus funds around the world. Last year they placed $132 billion abroad, roughly half of it in U.S. Government and corporate bonds.
Japan's rise to such riches has been particularly painful for the U.S., the world's foremost military power and Tokyo's most important ally. As of last year the U.S. had also become the world's biggest foreign debtor (1986 total: more than $200 billion). That debt is steadily being compounded by the trade deficit, which rose to a new record of $169.8 billion last year. Of that total, $58.6 billion was owed to Japan, based on $85.5 billion in Japanese imports to the U.S. and only $26.9 billion worth of return U.S. exports.
The irony is that probably at no other time in postwar history have the U.S. and Japan managed to cooperate as well as they have under Reagan and Nakasone. In the past five years, the two countries have reached an unprecedented degree of understanding on Japan's strategic role in the Pacific. That Japanese contribution is, quite simply, invaluable. Says Katsuro Sakoh, a senior fellow in Asian studies at the conservative Heritage Foundation: "Security is the cornerstone of the U.S.-Japanese relationship." Japan's 1987 military budget of $32 billion is now the world's third largest after that of the U.S. and the Soviet Union. Under Nakasone, Japan is beginning to meet a long-standing but unfulfilled commitment to safeguard its own sea-lanes up to 1,000 miles off the Japanese coast.
But while the security ties have thickened, the trade imbalance has widened. It is now more than three times as great as it was only five years ago. From year to year a trade deficit may not be a bad thing, but over time it becomes debilitating, since money must be borrowed abroad to finance the shortfall. Even then, such borrowing can be useful if it is used to finance needed capital improvements, as the U.S. did in the 19th century. The current U.S. trade deficit, however, is largely a result of America's passion for more consumer goods.