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NOTES

October 19, 1987

The biggest thorn in U.S.-Japanese relations will soon be big Japanese investment in the United States instead of Japan's big trade surplus with the United States, according to U.S. policy experts.

"The trade war is yesterday's news. . . . The huge imbalance will be corrected," Gary Hufbauer, professor of International Finance at Georgetown University, said last week at a seminar at London brokers Smith New Court. "The battle of the future will be over investment issues."

More than a third of Japan's investment overseas is in the United States, with a 1951-86 cumulative total of $35.45 billion, according to Japanese Ministry of Finance data. The pace of investment, particularly manufacturing, quickened during the past two years as the yen appreciated.

Big takeovers of U.S. businesses by Japanese concerns, seldom seen now, "would charge the atmosphere quickly," Hufbauer said. But he said he expects the Japanese to proceed cautiously, agreeing to include some U.S.-made parts, for instance, in cars and electronics.

William Triplett, a senior staff member of the U.S. Senate Committee on Foreign Relations, said tensions could emerge as individual states and firms go to Japan actively soliciting investment.

"At current yen/dollar levels, even small Japanese suppliers now find it competitive to come to the U.S. on the periphery of major Japanese firms there. This is likely to become an increasing political problem."

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