Japan has the third largest economy in the world behind the U.S. and China; China is Japan's biggest trade partner followed by the U.S, being that Japan is a relatively small island its economy relies on exports.
As of August, Japan increased it's trade surplus with the United States to $5 billion; August represented the 8th straight month in which Japan's trade surplus with the U.S grew. Also in this same 8 month period Japan's exports to the U.S. rose, these exports were lead by cars, car parts, and organic compounds. Japanese imports of U.S goods also rose in August for the 5th month in a row, these higher levels of imports came primarily from U.S exports of aircraft, liquid petroleum gas, and motors.
While running a trade surplus with the U.S, Japan experienced it's 14th straight month having a trade deficit with the rest of the world, this deficit equaled about $9.7 billion. Japan's overall exports have risen for the past 6 months while its imports rose for the 10th month in a row, Japans primary exports consisted of cars, organic compounds and mineral fuels; in this same time Japan's main imports were oil, electronic parts, and clothing.
I pose the question why does Japan run a trade surplus with U.S, while running a deficit with the rest of the world? Could the U.S increase it's T.O.T with Japan by approaching more of a trade equilibrium between the two?
http://www.usatoday.com/story/money/business/2013/09/18/japan-trade-deficit-swells-25-percent-in-august/2834851/
ReplyDeleteAs we learned in the class a country runs a trade surplus when it exports more than it imports. Conversely a country runs a trade deficit when it imports more than it exports.
Here you say that Japan increased its trade surplus with the United States to $5 billion, while running a trade deficit with the rest of the world around $9.7 billion. That means in total that Japan has a trade deficit caused by increasing imports.
“Japan's trade accounts fell into deficit as costs for importing crude oil and natural gas soared following the closure of nuclear plants after the March 2011 earthquake and tsunami on its northeastern coast led to meltdowns at the Fukushima plant. Costs of imported fuel, which comprise more than a third of all imports, rose nearly 18% and the value of total imports of food, raw materials and manufactured goods also rose at a double-digit pace from the same month a year earlier. “
The questions of whether or not the U.S. could increase its T.O.T with Japan by approaching more of a trade equilibrium between the two is not easy to answer.
Japan is the fourth largest trading partner of the U.S. A trade equilibrium between the two, would mean, that either the imports of the US from Japan decrease or the exports to Japan increase. Both would improve the TOT of the U.S.
But I think to focus on a bilateral trade between US and Japan, meaning their differences between exports and imports, is critical, because it does not count only the value added in a specific country. So there is no evidence if there is a “real” trade deficit.
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ReplyDeleteI think there are some reasons that Japan runs a trade surplus with the U.S, while running a deficit with the rest of the world. First, Japanese economy relies on exports, so it needs to import many raw materials, such as oil and electronic parts, to produce some high-tech products. The U.S. doesn’t have a lot of raw materials, even though it has, the price is quite high, so Japan should import these things from other countries, but not the U.S. Second, Japan has a large market in the U.S., because the demand of the products manufactured by Japan is high in the U.S. Therefore, the U.S. imports a lot from Japan. Japan imports a little from the U.S., but exports a lot to the U.S. This explains why Japan runs a trade surplus with the U.S. Third, other countries, especially developing countries, have some comparative advantages, owing to cheap labor force and abundant resources. So they export many primary products. Although they import from Japan, the quantities are small, because they can import from other countries. Thus, other countries run a trade surplus with Japan.
ReplyDeleteAccording to the first comment, “A trade equilibrium between the two, would mean, that either the imports of the US from Japan decrease or the exports to Japan increase.” “The imports of the US from Japan decrease ” can lead to the price of imports decrease and improve the U.S.’s TOT. However, if the U.S.’s exports increase, the price of exports will go down, which hurts the TOT. So I don’t agree that both of them can improve the TOT of the U.S.
For the question one, I think there are many other aspects influencing the trade of Japan except for the U.S. As you say, China is the biggest trade partner of Japan. In a way, China has at least the same affection as the U.S to the trade of Japan and we can not ignore the impact of other big trade partners of Japan such as Korea and EU. Thus, even though Japan runs a trade surplus with the U.S, it is still possible for Japan to run a deficit with the rest of the world if the exportation of Japan to other big trade partners like China or Korea drops.
ReplyDeleteFor the second question, whether the TOT of the U.S increases depends on the changes of the export price over the import price of the U.S. I agree with Caroline's opinion, it is hard to answer. The U.S doesn't just trade with Japan, there are many other trade partners may affect the international trade of the U.S. Basing on these litmited data, I can't confirm whether or not the TOT of the U.S is increase.
With this topic I believe that does not make a surplus with everyone else because the rest of the world will not buy exports from Japan. Also I think the term of trade of the us will Japan have us happy that its better off so I don't think an equilibrium is easy to achieve or wanted by the us.
ReplyDeleteIn regards to the trade surplus, we talked about how a trade surplus is just when exports exceed import to a certain country and conversely a deficit occurs when it imports more than it exports. Japan has found that the need for oil, clothes, and electrical parts is far more exceeding the demand for their exports of auto parts, organic chemicals, and mineral fuels on the economy as a whole. In terms of just with the United States it is obvious to see that the need for Japan car parts exceeds the demand for any American goods giving Japan the trade surplus. With the Terms of Trade, I do not think that the United States would want to produce more cars parts like Japan because that would flood the market with car supplies and drop the overall price in car parts, hence causing a drop in the terms of trade.
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