JAPAN TRADE PROFILE
Problem Statement
The main problem and focus of this research is to construct a trade profile that analyzes and explains the trade patterns of Japan.
This study will first establish the trade performance of Japan among the world economy. Trade policies of Japan will be reviewed to show how it affects the trading pattern of the country. Comparative tables will also be shown to provide a clearer view of the competitiveness of Japan in the global market. Showing the competitive standing and ranking of Japan will establish some of the patterns and profile of this country. The study will also show past data of the trading patterns and the changes it has undergone.
By studying the past data and showing the pattern of growth and decline of Japans trading sector, we can point out the trade profile of Japan. The significance of finding out and analyzing the trade profile of a particular country is to follow the positive applications they have made. We can also learn from the mistakes that was made which causes the decline or shift of the countrys economy.
The common view of Japans trade profile is that it is a country which specializes in the exportation of electronic gadgets and cars. This study will delve deeper into this common trade profile that people perceive for this country. This will show that Japans economy has also undergone major decline and decrease in growth for a period of time. One of the recent major problems facing the Japanese car industry is the technical issues of Toyota cars which will definitely have an impact on the economy. Another issue is that Japan has the worlds fastest aging population because of the high life expectancy of the country.
Literature Review
The country of Japan started its rise to economic power a few years after the end of the second world war. They relied on the international trading and domestic investment from the very start. The focus of the early trading years of Japan was in textile and radio. A major factor which contributed to Japans early economic rise was their industrial policy which is the assignment of foreign currencies earned from exports to industries that was expected to earn more foreign currency (Ito, 2001, p. 289). Having this policy gave the country the thrust to produce more high value products, those products that have a higher earning power, which in turn earns more foreign currency. This early pattern gave way for Japan to produce more of these goods leading up to the exportation of electronic products such as tape recorders and televisions as well as ships and steels. Today, Japan is a major exporter of cars and high-tech gadgets.
To fully understand the trading profile of a country, we have to know their basic trading index and their trade performance change index. The basic trading index consist of five variables
the share of the countrys export sector in world trade
the sectoral trade balance
per capita exports
the level of differentiation of export products within a given sector
the level of diversification of export markets (Schwab, 2003, p. 308).
The measurement or the index of change, either for the improvement or the weakening, of a countrys competitiveness position is called the change index and is composed of
the change in the countrys sector specific share in world trade
the increase or decrease in the trade balance within the given sector
the degree of specialization in particularly dynamic products within a given sector
the change in product differentiation
the change in market diversification (p. 308).
The establishment of the trading policy of Japan is very important to show the causes of the trade patterns of this country. In the past, Japan has lowered its tariffs and in 1985 import duties were eliminated on about 1800 narrowly defined product categories, for which tariffs were generally below 5 percent (Balassa Noland, 1988, p. 49). Non tariff barriers in Japan apply to agricultural and fishery products and to some manufactured goods. Japan has also prioritized the promotion of High-Technology Industries. They have made import limitations on semiconductors, market shares of foreign leading products such as Motorola has been limited and they have limited the role of foreign companies in the provision of the international telephone services. Japan has made a firm stand on foreign telecommunications firms by excluding them from the domestic common carrier market. Entry of foreign telecommunication firms are also subjected to the approval of the Ministry of Post and Telecommunications. Regarding the Japanese patent system and trademark, it is known that this country has a slow process when it comes to registering patents. Foreign trademarks may be registered by domestic firms that have used them at home or abroad. Distribution channels are excessively complicated and discriminate against foreign made goods. Distribution margins for import goods has more than twice as high as for competing domestic products. This shows that Japan has a very strict policy against import goods, prioritizing their domestic products in almost all the sectors from raw materials, food, telecommunications, intellectual property and distribution of goods. This is the reason why the predominant products and goods in Japan are locally made.
DISCUSSION
The trade index has been previously defined on this study. This index will now be applied to Japan to have a glimpse of this countrys trade pattern.
The most common index is the share of Japans export sector in the world trade. The latest information regarding the export of Japan is that their export has declined last year (2009) by 30.9, plummeting to an estimated US516.3 billion from 747 billion just one year earlier (Workman, 2010).
The year 2009 was not a very good year for Japan in terms of its export relations with the United States. Still the leading export of Japan to the US is technological and industrial products. However, there has been a considerable loss for science related technologies and Japanese automobiles.
One new trade pattern that can be seen in Japan is the rising surge of manufacturing imports in the country. This shows that although Japan has very strict trade policies for foreign goods and products, it still can be penetrated and is now slowly surging up. These imports of manufacturing goods are coming from East Asian countries.
Here are the changes in the pattern of trade among the East Asian Nations EANIC (Singapore, South Korea, Taiwan and Hong Kong), Japan and the United States. By showing the changing trade patterns of these countries, the trade relations of Japan with other countries can be clearly seen. Please refer to the table 1 at the next page
Table1
Triangular Trade Relationship among Japan, EANIC and the United States.
Export toImport fromJapanUnited StatesEANICsWorldJapan1970...6,015(31.1)
(15.5)2,641(13.7)
(29.9)19,318(6.8)1975...11,242(20.2)
(12.1)6,965(12.5)
(26.1)55,728(7.0)1980...31,910(24.5)
(13.4)19,459(14.9)
(22.3)130,435(7.0)1985...66,684(37.6)
(20.4)22,684(12.8)
(23.5)177,189(9.8)1987...85,017(36.8)
(21.1)39,803(17.2)
(27.1)231,332(9.8)1988...90,245(34.1)
(20.6)49,819(18.8)
(25.7)264,961(9.8)United States19704,652(10.8)
(29.9)...1,810(4.2)
(20.5)43,231(15.3)
19759,563(8.9)
(19.0)...5,233(4.9)
(19.6)107,586(13.6)198020,790(9.4)
(16.8)...15,079(6.8)
(17.3)220,781(11.8)198522,631(10.6)
(19.8)...16,918(7.9)
(17.5)213,146(11.8)198728,249(11.2)
(21.1)...23,584(9.3)
(16.1)252,884(10.7)198837,732(11.8)
(22.6)...34,881(10.9)
(18.0)320,385(11.8)EANICs1970747(11.8)
(4.8)2,031(32.1)
(5.2)500(7.9)
(5.7)6,336(2.2)19752,845(13.1)
(5.7)5,699(26.2)
(5.1)1,966(9.0)
(7.4)21,767(2.8)19807,681(10.1)
(6.2)18,965(24.8)
(8.0)7,009(9.2)
(8.0)76,351(4.1)198511,434(10.0)
(10.0)39,693(34.8)
(12.2)10,165(8.9)
(10.5)114,006(6.3)198720,466(11.5)
(15.3)62,530(35.1)
(15.5)17,001(9.6)
(11.6)177,908(7.6)198827,855(12.4)
(16.7)69,968(31.3)
(16.0)24,091(10.8)
(12.4)223,763(8.3)World197015,543(5.5)38,811(13.7)8,828(3.1)282,638197550,310(6.4)92,925(11.7)26,661(3.4)791,3911980123,684(6.6)237,680(12.7)87,360(4.7)1,87,8001985114,424(6.3)326,248(18.0)96,697(5.3)1,811,5001987133,586(5.7)403,587(17.1)146,658(6.2)23533001988166,966(6.2)437,438(16.2)193,746(7.2)2,707,500
Source (Krugman, 1995, p. 88)
From table 1, we can see that the Japanese export has a growth of about 10 percent in 1985 from 7 percent in 1980.
Let us now discuss Japans import and export level. The growth in Japans export level can be caused by a number of factors the increasing demand for Japanese products the competitive prices of Japanese products in the market and lastly, the high quality standard of their products prompted consumers around the world to buy their products. The major factor opposing the increase of Japans export level is the product saturation in the market. Japanese firms were likely to turn to export markets for expansion.
As mentioned earlier in this study, the import level of Japan is gradually increasing. There are several major factors contributing to the increase. The most obvious factor is the economic growth of the country and the income levels . Another factor would be the price of imports. For every increase in the import prices, particularly raw materials and energy, causes Japans import bill to rise accordingly. Japan has to pay higher prices for imports. Trade liberalization is another factor. Imported products are now starting to compete more fully in the Japanese market because of the reduced tariff rates and the lessening or weakening of the trade barriers. Import level in Japan is primarily dependent on its domestic economy. As the economy grows, so does the level of importation. During recessions, import level is weak and in decline.
Another trade profile of Japan is its ability to bounce back from trade deficits. This country has experienced huge trade deficits in the past. An example of this is during the rapid rise of petroleum prices and raw materials in 1973 which plunged the country into a trade deficit. The country recovered from this because of its strong export level. With this knowledge, it can be readily shown that Japan is very much affected and highly vulnerable to the increase in petroleum prices and raw materials in the world market. However, Japan has the capability to recover from such deficits because of its strong export sector. Their export sector is able to respond to match the increase in imports. The ability of Japans exporters to expand sales abroad while commanding premium prices for their products is highly commendable.
The direction of trade of Japan should also be taken into account. Japan trades with every country in the world. Since 1950 onwards, Japan trade has been shifting from developing countries to developed countries such as the United States. In terms of importation, Japan relies on developing countries with about half coming from the Middle East. This shows the voracious need of Japan for raw materials and petroleum. This, however, creates friction because the countrys economic status depends partly on their ability to import food, raw materials and energy and export finish products. Usually in most cases, the country providing Japan with the imported goods does not have population income levels or trading ties with Japan to buy sufficient finish products to bring bilateral trade into balance.
Trading profile of Japan can also be established by taking into account the value of yen, the money currency of this country. The relative value of yen is determined in foreign exchange markets by the forces of demand and supply. The demand for yen arises from the demand for what the yen would buy by foreigners in Japan. The supply of yen arises from the desire of yen holders to exchange their yen for dollars or other foreign exchange currency in order to buy something abroad. This means that if Japan has a surplus of export, this will increase the value of yen. If there is an excess in imports, the value of yen will decrease.
As with other countries, Japans currency has experienced fluctuations throughout the years. In the first half of the 1980s the yen failed to rise in value. From 221 in 1981, the average value of the yen actually dropped to 239 in 1985. The rise in the current account surplus generated stronger demand for yen in foreign-exchange markets, but this trade-related demand for yen was offset by other factors. A wide differential in interest rates, with United States interest rates much higher than those in Japan, and the continuing moves to deregulate the international flow of capital, led to a large net outflow of capital from Japan.
The yens increased value made Japanese exports less price competitive and the imports more price competitive. However, this pattern did not really affect the economy of Japan negatively.
To conclude this study, the trade pattern of Japan shows strength and confidence even in trying times. This will continue as long as Japan produces quality high tech products. It has been mentioned also that Japan is opening up its trading policies meaning trade relations with other countries are flourishing especially with other Asian countries and of course the United States. Importation of goods is a necessity for Japan because they need raw materials and they will continue to import a lot of goods from neighboring countries.