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American companies are facing increased competitive pressures from foreign firms. Many observers feel that U.S. firms lag behind their foreign competitors in the development, application, and marketing of new technologies and techniques. The Japanese industrial enterprise is characterized by a large proportion of private sector financing and many other factors, which this report analyzes at length. The question being debated by Congress is whether or not U.S. government programs and policies are an acceptable and effective means of supporting the efforts of American industries to operate in a manner consistent with success in world markets.

The Clinton Administration and the 103rd Congress are in the early stages of a major review of U.S. trade, international and security relations with Japan, the principal U.S. ally and trading partner in Asia. A number of recent developments have raised tensions in this mutually beneficial relationship, which is still characterized by deepening economic interdependence and close political and security cooperation. These include the end of the Cold War, which has eliminated a common military threat; the recent renewed rise in Japan's trade surplus after several years of decline; and increasing international assertiveness by Japan, sometimes in conflict with U.S. policy.

Congressional policymaking with respect to trade with Japan is driven by strong domestic interests, appeals to broad political principles, and numerous horror stories. The $43 billion U.S. trade deficit with Japan continues to be a focus of attention, but the deficit is an issue because it reflects aggressive competition between Japanese companies and U.S. industries.