Cross-Investment: A Second Front of Economic Rivalry

• Published in: California management review 1987, Vol.29 (2), p.20-48
• Main Author: Encarnation, Dennis J.
• Format: Article
• Language: English
• Subjects: American; Automobile manufacturers; Economic policy; Economic relations; Financial investments; Foreign direct investments; Foreign investment; Foreign investments; Foreign subsidiaries; INTERNATIONAL COMPETITION; International trade; Investment policy; Investors; Japan; Japanese; Market penetration; Policy making; Protectionism; Restrictions; Semiconductors; Subsidiary companies; United States; US exports; US imports; Wholesale trade
• ISSN: 0008-1256; 2162-8564
• DOI: 10.2307/41165237

Everyone knows that Japan has profited for more than a decade from a continuous trade surplus with the U.S. However, Japan has also become a large capital exporter—with America, previously a major capital exporter, now being a principal recipient. Japanese investments in the U.S. take many forms and have been growing rapidly. In fact, Japan has become America's third largest foreign investor. Like trade competition, this second front of economic rivalry represents an increasingly formidable Japanese challenge to U.S. business—now mounted on America's home grounds. On the other side, by 1983, only Canada and Switzerland surpassed Japan as the target for new U.S. direct investment abroad. This article examines the history and practice of cross-investment between the U.S. and Japan. The full story of cross-investment involves a larger tale, that of growing similarities and persistent differences in the government policies, industrial structures, and corporate strategies of the two countries. The growth in similarities represents an increasingly potent weapon in the arsenal of managers and policymakers in the U.S. and Japan.