Over the years Japan has relied on heavy import tariffs to maintain domestic agricultural success. However, the Japanese Prime Minister, Shinzo Abe, is looking for a change. As is evident, Japan has been close-minded to the idea of free trade in this sector. By cutting import tariffs dramatically, Japan will be opening up to world trade, giving a chance for other countries to appeal to the domestic consumers in Japan. Nonetheless, Abe has high hopes for the current domestic producers who are at risk to lose domestic market share, believing that they will be able to increase exports of these Japanese “high-end food products”.
Using
the standard trade model one could assume that domestic prices would fall to
match world prices and that accordingly the price of exports would fall to
match world prices as well. The catch here is that the Japanese exports are
being marketed as “high-end food products”, allowing them to
maintain higher prices. I would like to add my own input here as I believe that
domestic pricing will indeed fall to world pricing. I also believe that Japan’s
exporting price will fall (not completely to match world pricing), that the
quantity of their exports will increase greatly, but these producers individually
will not be able to match the revenue they were previously making with the
tariffs.
By utilizing the Hecksher-Ohlin (pg. 3, third paragraph) model we can show that,
while these import tariffs are more efficient for a country’s economy than
trading at autarky, free trade still provides the greatest increase in relative
economic welfare. The tariffs that have been imposed by Japan have increased
the welfare of the domestic producers, but hurt other areas of the economy.
Therefore, Japan’s decision to lift these import tariffs should prove to be
beneficial to the country as a whole, although it will end up hurting domestic
producers. As I covered earlier, Abe is trying to minimize these losses by
encouraging domestic producers to begin exporting more of these ”high-end”
goods as they begin losing domestic market share.
I think that you have this right. The trade tariffs are helping their economy at the moment. But if they are to open up to trade then their prices will fall to meet the world market. This will probably make them worse off in the short run, but it will help them to open to trade in the long run. This is because it will allow them to get more of their high end product out to the world and raise demand.
ReplyDeleteI agree with you. Reducing the imported tariffs improves Japanese overall trade. But the workers in "high-end" food sector absolutely loss due to the opening to the trade because the price of these goods have to fall to match the world relative price. It may be a good way to minimize the losses by exporting more "high end " goods. If we assume that Japan is a capital intensive country, opening to trade will increase the labor/capital in both capital and agriculture sectors. That means there are relatively more workers in both sectors. Although workers in agriculture sector loss because of the decreasing wage, in the long run, the improvement of productivity in both industries may enhance Japanese economy.
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ReplyDeleteI find it interesting that the Prime Minister has so much confidence that their prices will remain high. In order for this to hold true, the quality would have to be substantially greater than other goods in the market. Most likely, I would expect the price of these goods to drop to world prices, and for the agriculture sector to be the "losers" in this scenario. This would demonstrate a Pareto equilibrium with the country as a whole being better off with lower prices, but with the workers in the agriculture sector suffering from this decision. If these workers can maintain high enough quality of their products to successfully sell them at higher prices, they will now have a larger market for their products, which could lead to more demand and higher prices.
ReplyDeleteThis is an interesting article. I agree with your views on what will happen to the welfare as a whole in Japan. It makes sense that it would go up with the emergence of free trade. I feel the same way as Melissa about the outcome towards the members of the agriculture sector. With the opening of free trade the well being for those in the sector will probably go down regardless of how the goods will be marketed. It will be interesting to see if the "high-end food products" will actually be able to maintain at least some of the price they are currently selling at. If this would happen Abe's thoughts would be correct that this would at least minimize the loses in the domestic producers for agriculture.
ReplyDeleteAlthough Japan has imposed import tariffs in these years to product their domestic products, I think other countries are not willing to import from Japan, which are bad for all countries. If Japan can trade more freely, it not only can make its export sectors better off, but also other countries can be better off. As we all know, revenue=price * sales quantity. When Japan reduces import tariffs, its price will go down. However, its “high-end food products” may attract more people to buy them, so its sales quantity will increase. If the percentage of the increase of sales quantity is larger than the percentage of the decrease of price, producers in Japan can still have profits. On the contrary, it cannot be better off. Nevertheless, I believe that domestic producer can still gain from trade, because they can import much cheaper raw materials, which can help them to reduce cost. For other countries, they can export more products to Japan and import “high-end food products” to promote national healthy level.
ReplyDeleteI agree with your analysis here. Japan defiantly would be better off with free trade. My question would be who are the main winners and losers with in Japan, and if they have any political influence over these tariffs? If there is a majority of people that would lose from the domestic drop in price, Abe is working in his self-interest to keep people happy for election purposes. If this is not the case there must be some other monetary force driving his decision for inforcing tariffs.
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