In years to come, the real trade battleground for Japan and the U.S. will be the developing world. With 80% of world population and with growth rates nearly twice those of industrial nations, developing countries "have already emerged as a legitimate fourth engine in the world economy" (after the U.S., Japan, and Europe), says Joseph P. Quinlan, of Dean Witter Reynolds Inc.
The U.S. is the leading exporter to 19 of these developing nations; Japan to 13. (Germany ranks third, as leading supplier to 9.) America is dominant largely in Latin America; Japan in Asia. But the downside for the U.S.--and the upside for Japan--is that near-term prospects are poor for Latin America, while Asia is poised to turn in the strongest economic performance of any region over the next couple of years. And growth means robust demand.
Economists at Merrill Lynch & Co. figure that, while growth around the world will slow this year and next, it will remain fairly strong in Asia, coming in at 7.3% in 1996. Traditionally, Asia exports heavily to the U.S., then uses the dollars to buy from Japan. The surge in the value of the yen might mean Asia cuts back on Japanese imports, but it's unlikely there will be a big shift in the established trading pattern, says John Praveen, economist at Merrill Lynch.
In fact, Japan enhanced its position in Asia last year, notes Dean Witter's Quinlan--pushing out Hong Kong as top foreign supplier to China. It also became the No.1 exporter to the Philippines and Pakistan, unseating the U.S. India imports more from America than from Japan, but Japan is gaining fast.
The U.S., meanwhile, retains its dominance in Latin America. But this region's demand for U.S. goods is unlikely to expand much. Latin American nations will see overall growth of just 0.9% this year and will probably rebound to about 2.4% next year.