Trade Issues: The View From MITI
In recent years, American exports have been expanding at 1.1 times the rate of growth in the world’s economy, while Japan’s have been increasing by 1.7 times world growth.
America’s appetite for imports, however, has been outstripping--by 2.3 times--the expansion of the U.S. economy. Japan’s imports, by contrast, have not even kept up with the growth of the Japanese economy, increasing by only 74% of economic growth.
Shinji Fukakawa, the new vice minister of the Ministry of International Trade and Industry (MITI), made the comparisons in an appearance at the Japan National Press Club in explaining why Japan’s trade surpluses have snowballed out of control.
His explanation underlined why Prime Minister Yasuhiro Nakasone has targeted reform of Japan’s economic structure as a key to reducing trade surpluses and lessening reliance on overseas demand to fuel growth at home.
Even West Germany, which is second to Japan in accumulating trade surpluses, has more “import elasticity” than Japan, Fukakawa noted. West Germany’s imports have grown twice as much as its domestic economy, while its exports have expanded by only 1.2 times the growth in the world’s economy, he said.
West Germany imports large quantities of components for its manufactured products from neighboring countries, while Japan does not, Fukakawa said. On the other hand, Japan’s major exports are automobiles and electronic goods, and their sales zoom when consumers in other countries enjoy prosperity, he said.
Easier to Purchase
“That’s why we must promote an international division of labor, with more Japanese overseas investment (in manufacturing) and by changing our industrial structure into one which will procure more parts from overseas sources,” he said.
Recent technological advances in the economies of Japan’s Asian neighbors will make it easier for quality-conscious Japanese manufacturers to buy more parts from them, he predicted.
Fukakawa’s example underscored one of the difficulties that Washington officials have faced over the years in dealing with Japan--namely, that conventional economic theory often does not apply to Japan, or applies far less than they expect. In Japan, while growth does promote imports, as conventional theory holds it should, it does so far less than most American economists would expect.
Fukakawa--MITI’s most senior civil servant, who assumed his post in June--acknowledged that the economic frictions that Japan is now suffering with the rest of the world stem, in part, from differences in cultural behavior, including Japanese working habits, the priority that its corporations give to long-term goals over short-term profits and the “group actions” of the old zaibatsu associations of companies.
“Internationalization of corporate actions is one (MITI) policy which will help solve economic frictions,” he said.
Although in dollar terms Japan’s exports are continuing to increase while imports plummet, the volume of exports declined 2.3% in June while the quantity of imports grew 15.6%, he said. He warned, however, that the effect of the yen’s gain in value--more than 50% since last September--will not be enough by itself to smooth Japan’s trade frictions.
Structural Change Required
Structural change, he said, also is essential to avoid yet another “vicious cycle” of Japanese adjusting to higher yen values, regaining competitiveness and resuming export growth.
Already, he said, Japanese exporters have raised the dollar prices of their goods to make up for about half of the loss in yen income that they have suffered from the yen’s appreciation. Reductions in the prices of raw materials also have filled part of the gap. And suppliers are being asked to cut their prices, he said.
Next in the line, Fukakawa predicted, will be measures to cut labor costs, which, he noted, have become “the highest in the world” when calculated at an exchange rate of 157 yen to the dollar. (This week, the exchange rate has already exceeded that level, pushing per-capita national income above $17,500.)
“Beginning this fall, corporations will make adjustments in employment to reduce their labor cost,” he said.
Without promoting an international division of labor, however, Japan could again fall back into a pattern of burgeoning surpluses and new pressure for still more yen appreciation.
Fukakawa said structural adjustment on an international level will not be easy because Japan also suffers from a series of economic imbalances at home. Excessive savings and insufficient investment is one. Imbalance in growth between Tokyo and many other parts of the country is another. And “living conditions which are hardly sufficient for a nation with the world’s No. 1 per-capita national income” are yet another.
Those poor living conditions are caused in large part by land prices that have soared out of control. Fukakawa noted that the market price of all land in Japan, a country smaller than California, adds up to twice the value of all land in the United States. “Japan must tackle these imbalances, too, and carry out its policies from an international perspective,” he said.
