Excerpts on Trade Developments
- From: PaPaPeng <PaPaPeng@xxxxxxxxx>
- Date: Tue, 20 Sep 2005 20:43:21 GMT
Excerpts: Trade Deficits
http://www.atimes.com/atimes/Global_Economy/GI21Dj01.html
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on
international politics and economy. Masaki's e-mail address is
yiu45535@xxxxxxxxx
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Japan and the US saw tensions in bilateral trade relations rise to
their highest point between the 1980s and the mid-1990s. But now
fierce Japan-US trade friction is a thing of the past. So, what
happened in the past decade or so?
Japan's annual trade surplus with the US remains inexorably huge, at
about $75 billion in 2004. And some relatively minor individual issues
pop up from time to time, like the current fracas over Japan's imports
of American beef, which have been suspended since the first case of
mad cow disease in the US was discovered in December 2003.
But Japan is no longer a main target on - if not completely off - the
US radar screen. The US's annual trade deficit with Japan is now
eclipsed by that with China, which totaled a whopping $160 billion, or
about one-fourth of the $610 billion overall US trade deficit, in
2004. American shops are full of Chinese clothes, shoes and toys. The
trade gap is expected to reach $200 billion this year. The percentage
of a deficit with Japan in the overall US trade deficit sharply
plummeted to about 12% in 2004 from 65% in 1991.
Furthermore, unlike in the 1980s and early 1990s, Japan is no longer
perceived by the US as a main threat. Japan is still the world's
second-largest economy, after the US. But after the 1990 burst of the
bubble economy, Japan had been mired in a prolonged economic slump.
Its economic power and presence on the internal stage has
significantly declined. "Japan bashing" by the US has been replaced by
"Japan passing" and then by "Japan nothing". In recent years, the too
weak Japanese economy has been seen by the US even as a "Japan
problem".
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In other recent developments that raised the eyebrows of many in the
US, China issued a joint statement with Russia and four Central Asian
countries at a summit of the Shanghai Cooperation Organization in July
calling for an early withdrawal of US forces from Central Asia. In
August, China also conducted its first, high-profile joint military
exercise with Russia. Both the statement and military exercise were
widely seen as countering the US domination of world affairs.
In addition, China's recent building-up of ties with such anti-US,
oil-rich countries like Iran and Venezuela has unnerved the US. China
has also strengthened ties with Myanmar in recent years, in defiance
of US and European sanctions against the military-ruled Southeast
Asian country.
To be sure, all these things may sound purely political. But politics
and economics cannot be simply separated in the real world.
Economically, a quick look at the trade data of Japan and China shows
differences in the two countries' trade structures. Although both run
up huge trade surpluses with the US, China's overall trade surplus
with the rest of the world has been hovering between $20 billion and
$30 billion annually in recent years, compared with Japan's well over
$100 billion.
China has become a major exporter of machinery and electric products
as well as such low-tech goods as textiles and footwear, and has
racked up huge trade surpluses with the US and Europe. But at the same
time, China has run up a big trade deficit with Asian neighbors. As
many economists note, China has so far been largely an assembly base
of multilateral companies, especially from Asian neighbors, for
products to be exported to the US and Europe. In fact, more than half
of Chinese exports are made locally at foreign-funded factories. China
imports high-tech parts and components, especially from Japan and
other Asian neighbors, for assembly of its products, and little value
is added to products in local production.
Trade friction between the US and China is still basically over
low-tech products such as textiles, although the more progress China
makes in catching up with the US, as widely expected, the more
high-tech products will be the focus of friction. Unlike once-mighty
Japanese banks, which swept through global capital markets, including
those in the US, in the 1980s, Chinese banks are almost invisible
abroad.
In the late 1980s, the administration of Bush senior pushed for reform
of Japan's economic structure through the SII talks. The US may feel
tempted to take a similar approach to its trade gap with China in the
future. But the US will remember quickly that despite its WTO entry,
China is still a "socialist market economy" under the control of the
Communist Party, and quite different from Japan.
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For many years after World War II, Japan was so heavily dependent on
the US for trade that many people said if the US economy caught cold,
the Japanese economy would suffer pneumonia. But the Japanese external
trade landscape is changing.
China became Japan's biggest trading partner for the first time in
2004, replacing the US. Sino-Japanese trade totaled about $213
billion, compared with the about $196 billion trade between Japan and
the US.
China accounted for 20.1% of Japan's overall trade in 2004. The
percentage of China trade in the overall Japanese trade began to rise
sharply after China's WTO admission, as Japanese manufacturers stepped
up the transfer of production facilities to China, resulting in
increased Japanese exports of key parts and components for local
assembly and more Japanese re-imports of locally made goods. The
percentage of US trade in the overall Japanese trade declined below
the 20% level for the first time in 2004, standing at 18.6%.
Japan's investment in China began to rise sharply around China's 2001
WTO entry, totaling 355 billion yen - or roughly $3 billion - in
fiscal 2003, which ended in March 2004. The fiscal 2003 figure
represented 8.7% of overall Japanese foreign direct investment made
that year, versus a paltry 1.1% share for fiscal 1999.
But the devil is in the details. Sino-Japanese trade rose 25.7% in
2004, but the pace of increase was much slower than China's overall
trade with the rest of the world, which grew a more robust 35.7%. This
is a trend that has been seen since the late 1990s. As a result, Japan
slipped from China's biggest trading partner to its third, after the
25-nation European Union and the US.
China is becoming an increasingly important trading partner for Japan,
but Japan is gradually becoming a less important trading partner for
China. This asymmetrical phenomenon reflects the booming Chinese
economy and slumping Japanese economy. Some people say that
Sino-Japanese economic relations may look "hot" for many Japanese but
only "lukewarm" for many Chinese. The current China fever among many
Japanese on the economic front may end up in an "unrequited, one-sided
love", they say.
Expanding trade sows the seeds of friction. Japan and China were
engaged in a tit-for-tat trade war in 2001. Japan imposed import curbs
on three Chinese farm products, including stone leeks, amid strong
protectionist pressure from domestic growers and their backing
politicians. China wasted no time to retaliate by slapping 100% import
duties on some Japanese industrial goods, including automobiles and
mobile phones.
When he attended the Boao Forum for Asia in China in April 2002,
Koizumi said he thought an economically stronger China created
opportunities for the Japanese economy, rather than posed a threat to
it. He may have been right. Booming exports to China, as well as to
the US, have driven an economic recovery in Japan in recent years. The
perception of China as an economic threat among many Japanese people
has been replaced by that as a blessing.
Some economists predict, however, that as Sino-Japanese trade
continues to expand at a torrential pace, the focus of trade friction
between Japan and trading partners will gradually shift away from
Japan and the US to Japan and China, especially the political
sensitive agriculture and high-tech sectors in the long run.
The ever-growing importance of China for Japan in trade and declining
importance of Japan for China in trade could put China at an advantage
in future negotiations on trade issues. In addition, Japan will lose
its most powerful diplomatic card in ties with China soon.
Japan has already decided to stop offering fresh low-interest yen
loans to China before the 2008 Beijing Olympics. The yen loans account
for the bulk of Japanese official development assistance, or ODA, to
China. Japanese ODA money began to flow into China in the late 1970s,
when China embarked on a policy of reform and openness at the behest
of the late paramount leader Deng Xiaoping. Well over 3 trillion yen
in Japanese ODA has since been provided to China. As a result of a
policy review by the Japanese government struggling with the worst
level of public deficits among major economies, the amount of
China-bound yen loans had already been significantly dented in recent
years. The loan amount dropped to 96 billion yen in fiscal 2003, more
than half the peak of 214 billion yen in fiscal 2000.
.
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