JIN-297 -- China Helps Extinguish U.S.-Japan Trade Friction

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Issue No. 297
Wednesday November 10, 2004
TOKYO

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CONTENTS

@@ VIEWPOINT: China Helps Extinguish U.S.-Japan Trade Friction

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@@ VIEWPOINT: China Helps Extinguish U.S.-Japan Trade Friction

A framed cover of the January 22, 1978, edition of the New York Times
Magazine hangs on the wall of my foyer. Black ships, the Rising Sun
flag snapping at their sterns, moor in New York harbor. Japanese crewmen
are unlading boxes onto the shore. In the foreground a strapping merchant
holds a car under the arm. Another balances a television in one basket
and a potpourri of electronic appliances in another suspended from a pole
across his shoulders. The cover reads, "How to Succeed in Business By
Really Trying."

I like the cover illustration for its Hokusai touch and reversal of
Perry's opening of Japan. It reminds me of how long trade has been an issue
between the U.S. and Japan. It was, after all, way back in 1972 that Japan
and the U.S. reached agreement on curbing Japanese textile exports, and as
long ago as 1977 and 1981 that Japan agreed to voluntary restraints on,
respectively, color televisions and cars.

Now the cover illustration is of historical rather than contemporary
interest. During the four years of the first Bush administration, China
rapidly came into prominence as a Japanese trading partner with a proportional
decline in U.S.-Japan trade. U.S.-Japan economic issues have taken second
stage to Sino-American trade friction.

Which does not mean the U.S. market is no longer vital to the Japanese economy.
The second Bush administration's economic management will have a large impact
on the Japanese economy.

Corporate Japan continues to ride a boom driven by exports to China. However,
for core industries including the automotive and home appliance industries the
U.S. market remains paramount.

As for automakers, Toyota's first half results disclosed that nearly one-third
of its record operating profit was from the North American market. The figures
for Honda and Nissan approached 50 percent. Canon reported that overall its
group depended on the Americas for one-third of its sales volume.

Nevertheless, hardly anyone fears the rekindling of the U.S.-Japan trade
friction that continued through the mid-90s. One reason is that Japanese
manufacturers have shifted from an export-oriented strategy to a strategy
based on on-site production and local sourcing and hiring.

China has also helped to extinguish U.S.-Japan trade friction. These past
several years the U.S. has achieved comparatively high economic growth while
Japanese exports to America have declined. In place of exports to the U.S.,
Japan is exporting parts and raw materials to Chinese manufacturing bases,
from which finished products are exported to America. According to the analysis
of the policy staff in the Cabinet Office, the expansion of the U.S. market
accounts for 50 percent of the growth in Japanese exports to China. In other
words, growth in exports to China can be viewed as growth in exports to the U.S.
Accordingly, in 2003 the U.S. trade deficit with China was up by 20.3 percent
over the previous year, to $123.3 billion, while the trade deficit with Japan
shrunk by 5.7 percent, to $65.9 billion.

In 2007 demand for DVD players, which Japanese manufacturers are vying to develop,
is forecast to reach 6.5 million units in Japan but more than three times that
figure, 21 million units, in America. That helps explain why Japanese
manufacturers have situated their assembly bases in coastal areas of China.

However, corporate Japan is hardly complacent. Japanese manufacturers worry that
the yen might appreciate and fear the effect of crude oil prices on American
consumers. Their anxiety was summed up by Kunio Nakamura, President of Matsushita
Electric Industrial Co., Ltd., who was quoted in the Asahi Shimbun as saying,
"The holiday season from Thanksgiving to Christmas is terribly unpredictable."

Indeed it is. In any case, it's time I replaced the magazine cover on my wall with
something more relevant to today. U.S.-Japan trade friction is becoming history.

-- Burritt Sabin

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EDITOR
Written and edited by Burritt Sabin (editors2@japaninc.com)

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