U.S. trade deficit with Japan shrinks 25.9% in January

Is this a problem?

I don't understand all the obsession with Japan vs. US. (or US vs. anybody) Japan is a strong exporter with the world, period. They sell more advanced steel products to China (3x) than they do to the US. They are one of the kings of heavy industry and the world runs on Japanese heavy tech. Also, there are lots of countries that have trade deficits with the US and they are not complaining.

Michael Pettis once explained this very well. As he said that Japan only had two choices:

Having a high trade deficit with the US, keeping unemployment low, decreasing saving rate, and slightly high consumption, but will face tariff or financial retaliation from the US as Americans struggle to maintain the supremacy of the USD against the rising Eurasian-Asian order.

Having a low trade deficit with the US, seeing unemployment high, increasing saving rate, and low consumption, potentially facing a deep economic recession.

Unemployment figures in Japan are untrustworthy, so I don't see much of a value here to measure Japan. The saving rate and consumption rate are now permanent, so either decision won't drive any of them up or down. I think the biggest rationale behind either decision is politics. Will Japan choose to help the US or not? There is a bad consequence for either choice.

 Second if the day ever arrives where there are no takers for US Treasuries the US faces a very hard reckoning.

This is precisely why Japan is the world net creditor. Keeping the USD supremacy alive.

A trade deficit... this is when you are exporting less than you are importing... so although you produce and export so much, you are able to purchase and import more...

Is this a problem?

It is a problem. Trade values should balance out over time if currency values are allowed to float freely and governments don't manipulate the process. Read my comment above how both the US and its trade partners distort "free trade" to nobodies real benefit. Ideally, when nation A runs a trade deficit with nations B, C and D, the currency from nation A will begin to pile up in surplus in nations B, C and D. Money is like any other commodity and when there is a surplus of it, it looses value. The value of As currency should fall while the values of the currencies of B, C and D which are in short supply in nation A should all rise. This makes As goods less costly in trade while simultaneously making the goods from B, C and D more costly in trade. This feedback mechanism should make trade self balancing. The US and its trade partners have short circuited this feedback for their own benefit, but I warn everyone that the longer and the larger an imbalance is, the more painful the eventual correction.

Btw, the US promoted export oriented growth for its allies in the face of a hostile USSR. Aside from the military stalemate, there was a war for hearts and minds as the west tried to convince developing nations that market capitalism combined with elected government, free trade, free speech, a free press and guaranteed rights provided a higher standard of living than Communism, while the Communists tried to pain the opposite picture as both sides competed for allies. Having obviously wealthy nations as the face of capitalism and democracy was part of the competition for hearts and minds. Japan and other western societies were obviously and enviously, more prosperous than their Communist counterparts.

What do we imagine the Japanese do with all their dollars that they receive for the goods the sell to the US?

Japanese and Chinese merchants convert their US Dollar earnings into Yen or Yuan at whatever bank they work with. The banks in turn use those Dollars to buy US Treasuries. This soaks up the excess US Dollars earned from Japan's and China's trade deficits with the US. In doing this, both Japan and China prevent US Dollars from piling up and, like any commodity in surplus, losing value in trade. Were that to happen, the value of the US Dollar would fall while the value of the Yen and Yuan would rise, making US goods less expensive while simultaneously making Japanese and Chinese goods more expensive. Easier to use those US Dollars to buy US Treasuries and maintain the artificially high value of the US Dollar in trade thus maintaining the relative trade advantage Japan and China have over the US. Btw, this works for the US side as it allows the US to run current accounts deficits year after year. As long as there are willing buyers for US Treasuries there is no problem. Well, there is one big problem and maybe two. First, it has gutted consumer goods manufacturing in the US (no shortage of cheap housewares and electronics in the US but it's mostly made abroad). Second if the day ever arrives where there are no takers for US Treasuries the US faces a very hard reckoning.

A trade deficit... this is when you are exporting less than you are importing... so although you produce and export so much, you are able to purchase and import more...

Is this a problem?

I would rather have an excess of imports over exports.

What are we people working for? The pride of exporting stuff??

Unfortunately Japan being on the “right” side of this horrible “deficit”, is actually in the worse position.

What do we imagine the Japanese do with all their dollars that they receive for the goods the sell to the US?

Tesla is a threat. Most definitely!

How long did it take Tesla to surpass Toyota? GM? Ford?

Yet where still sleeping at the wheel, still not taking Tesla seriously.

Even if Tesla is not popular in Japan, it will eat the market share of Toyota, Honda, Nissan.

Teslas manufactured in their Shanghai factory will be counted as part of the PRC GDP. They do not help the US trade balance or the US GDP. In fact Tesla models manufactured in China could supplant US built Tesla models for sales abroad cutting into both US exports and hurting the US GDP.

While the US trade deficits with China and Japan have shrunk the overall US trade deficit has grown. Suppliers are simply substituting away from nations onto which the US has imposed tariffs. The key to reducing the US trade deficit is to reduce the US current accounts deficit.

How can Japanese charge their Tesla when most live in apartments? Tesla would be a luxury and an inconvenience.

Not convinced about that. TESLA sold just 2000 cars in Japan last year. 

You're only looking at one-half of the trade deficit equation.

Tesla will dominate the automarket world-wide and Japanese auto exports to the US will crumble. The Import side of the equation will come down once we no longer import foreign cars.

Trade deficit will shrink further once Tesla takes over the automarket.

Not convinced about that. TESLA sold just 2000 cars in Japan last year. They have cut the price for the "cheapest" model 3 from ¥5.1 million yen to ¥4.3 million, but it will have to come down much further if TESLA is to dominate and take overtake sales of Toyota, Honda and Suzuki models.

Toyota Prius is about ¥3 million, kei cars which dominate about ¥2 million, so TESLA have to drop their prices a lot more if they wish to "take over" the market as you say. Otherwise, they will remain a small niche.

This is good news.

Trade deficit will shrink further once Tesla takes over the automarket.

Think of how many poor families we are feeding overseas...but...but...our own backyard? No green on either side of the fence.