What are the major changes to the foreign trade/ investment structure of Japan after the mid- 1980s? What is the policy response of Japan to the regional cooperation in the East Asia?

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What are the major changes to the foreign trade/ investment structure of Japan after the mid- 1980s? What is the policy response of Japan to the regional cooperation in the East Asia?

Unlike the economic booms of the 1960s and 1970s, when increasing exports played the key role in economic expansion, domestic demand propelled the Japanese economy in the late 1980s. In fact, Japan’s imports grew at a faster rate than exports since the late 1980s. In this essay, I shall explore the major changes to the foreign trade and investment structure of Japan after the mid- 1980s and the policy response of Japan to the regional cooperation in the East Asia.

There are a number of factors for the changes in foreign trade and investment structure of Japan after the mid- 1980s. The factors that I shall discuss in this essay are as follow: trade friction with the USA and the EU, and Reaganomics in the early 1980s, yen appreciation after the Plaza Accord, expansion of Japanese FDI in the USA, EU and Asia, effects of the Asian Currency Crisis and the bilateral FTA network. Then, I shall examine the prospect of the East Asian Community compared to the development of the EU and the role of Japan. Finally, I shall explore the policy response of Japan to the regional cooperation in the East Asia and then there will be the conclusion of this essay.

In spite of Japan’s full participation in multilateral tariff reductions, it frequently has been involved in contentious trade disputes with the United States and, to a certain extent, with Europe as well.

In 1980, Japan relaxed most controls on inward direct investment. Regardless of these major liberalisations of Japan’s trade policy, it has often been involved in trade friction with the United States. The reason for this is that growth of Japan’s exports provoked protectionist political pressure by import-competing American industries. In 1981, Japan accounted for 45.6 percent of US trade deficit and attention was especially paid to automobiles, television sets and textile industries. Japan-US trade friction is more about how best to appease or deflect that political pressure instead of about Japan’s “closed” markets or “unfair” trading practices.

Japanese automobiles exports accounted for 16 percent of Japan’s export in value. The explanation for this is that after the two oil shocks (the 1973 Arab Oil embargo and the 1979 Iranian revolution),  the car buyers from the US and Canada started to switch away from large American cars towards more economical cars made by Japanese manufacturers. Accompanied by the relatively low value of yen, the Japanese car price went further down. Thus, pressure from American car manufacturers for protection increased.

In 1981, the US Trade Representative, William Brock, warned the Japanese government that the trade deficit would result in strong political reaction in the US. Hence, the Japanese government voluntarily imposed export restraints on automobiles in May 1981, for two years with possible renewals thereafter. For this reason, Japanese car manufacturers were given a maximum number of cars to be exported and they then shifted to exporting high quality cars with maximum possible profit margin. This then led to increase in demand for American cars and also a rise in the cars’ prices. The Reagan administration saw such cartel-like implication as harmful to US consumers and announced not to seek renewal of such voluntary export restraints in 1985.

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In addition, the government of Japan announced a further tariff cuts on 1600 products that would be in effect in the following fiscal year; plus US $500 million was provided as fund for emergency aircraft imports and a plan to stockpile up to nine million barrels of crude oil. Such welcoming measures did not impress both American and European officials. From the American government perspective, as a full partner in the international trade system, Japan should provide fair and free access to its market. On the other hand, Susumu Nikaido, who was the party secretary general of Japan, pointed ...

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