Four Ways the U.S. Can Help Japan, Also Itself

How can we help?

That's the first question that comes to American minds as the size and scope of Japan's disaster unfolds. Click on PayPal to send money for emergency shelters. Sponsor a child from Sendai. Encourage General Electric Chief Executive Jeffrey Immelt to send nuclear engineers.

This week of horror has generated record good will in the U.S. toward Japan.

There is a way the U.S. can help. Of course, it starts with traditional aid. This week, this month, this year, the U.S. will ship resources to Japan.

There is another, more important way to express our good will. We can shift our economic policies. This will mean more to Japan than any material gift.

To see why, consider pre-quake Japan. The country's national debt was already enormous, ranking up there with Lebanon's as a share of its economy. Last summer China surpassed Japan as the world's second-largest economy, an enormous setback to Japanese pride. Then consider our own country, which is lurching toward recovery. If Japan is to stabilize and avoid a future in China's shadow, it needs to grow faster. And it needs a strong U.S. to be a counterbalance to China.

Fewer Trade-Offs

The first U.S. move is the easiest: when it comes to trade, stop being a prissy multilateralist. From the World Trade Organization to the North American Free Trade Agreement, postwar trade in the U.S. has been about lengthy agreements crafted by experts and government officials involving trade-offs that take years, even decades, to arrange. In multilateral talks the rule is too often fairness over speed. Multilateralists think it isn't worthwhile to conclude a fast agreement if it isn't fair.

The Trans-Pacific Strategic Economic Partnership for the Asia-Pacific region is a good example. It's a trade group that includes the U.S., Malaysia, Singapore and Vietnam. Japan has said it wants to discuss joining. But right now it can't because the other participants would demand Japan drop some of its protection for farmers. Letting Japan in with its current tariffs on foreigners wouldn't be fair, the thinking goes.

Now is the time to forget about fairness and just say, "Come on in, guys," with or without trade concessions. Trade negotiations on specific items matter less right now; inclusion matters more. In addition, it's time to suspend the longstanding bilateral haggles the U.S. has with Japan. If the Japanese are behind in learning the value of free trade, let them learn by watching the U.S. example. Multilateral trade that is more flexible, or plain old unilateral free trade, can have more effect than diplomatic rounds held for their own sake.

It's Japan's Time

"It's time for Japan to have a free-trade agreement with the U.S. and to be in the Transpacific Partnership," says Carlos Gutierrez, Commerce Secretary under President George W. Bush and now vice chairman at Citigroup.

The second thing the U.S. can do is stop kidding everyone about infrastructure as stimulus. The natural response of the U.S. now -- the most likely expression of our good will -- is to write a multibillion-dollar foreign aid bill so Japan can rebuild its cities, secure the coastline and clean up its nuclear power mess. When this law is passed, U.S. lawmakers will tell themselves that the gift serves two purposes: it rebuilds infrastructure and supplies economic stimulus. Prime Minister Naoto Kan signaled he too saw stimulus and infrastructure as one over the weekend when he called for a Great Depression-style New Deal for Japan.

Bad Medicine

Infrastructure spending as stimulus is no medicine for dramatic downturns or tsunamis. In fact, the very reason Japan was carrying destabilizing amounts of debt even before the quake was its infrastructure spending that failed to stimulate. Our own emphasis on stimulus plans that included infrastructure gave a lurching quality to recent growth. Now everyone is concerned that, absent stimulus, the U.S. can't grow farther. So sure, Japan will need new infrastructure now. But that infrastructure should be recognized for what it is: brick, wire, mortar. Remember, though, that growth comes from competitiveness, not government spending.

The third thing we can do is ease immigration rules so that more Japanese can study or work here. Japanese already have a presence in American universities. Make that presence larger. Then they will be less likely to stick to their old ways of protectionism and cronyism.

Lower Tax Rates

The fourth move for the U.S. would be to pass laws that strengthen our own growth. That means lowering our tax rates, including corporate taxes, so that Americans make more and buy more. This isn't selfish. It's actually generous, because it gives Japan a strong western ally to offset expansive China. Militarily, economically and politically, a strong U.S. ally gives Japan more leeway to set its own path.

Impossible. That will be the response to all these proposals, especially the ideas about trade. U.S. farmers and automakers will allow gradual staged change, but not rapid shifts that overnight increases their own sector's exposure to Japanese competition. The Japanese will never give up protection for beef or rice. Here's where that unprecedented good will, that urgent desire to help a stricken country represents opportunity. If we are ever going to widen our markets, this is the moment. The same holds for Japan. An open U.S., a flexible friend, is the kind of help Japan can use most.

(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and author of "The Forgotten Man: A New History of the Great Depression," is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Amity Shlaes at

To contact the editor responsible for this column: James Greiff at

© Copyright 2011 Bloomberg

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