Japan’s Role in International Trade

Mike Savas

For my paper, I focused on the importance of international trade for Japan. In 2010 census, Japan had a population of a little more than 128 million people, which made the eighth most populated country in the world. International trade is critical for supporting the country of Japan because the densely populated country does not have enough resources to support itself.

In order to trade effectively, Japan runs bilateral trade deficits and surpluses with its trading partners. Since it possesses little arable land and natural resources, I hypothesis that Japan has a comparative advantage in the production of goods and trades these goods for food, natural resources, and energy products. An example of bilateral trade imbalance is Japan imports more oil from Saudi Arabia than it exports goods to Saudi Arabia.

In order to understand the trade patterns of Japan, I used the economic models, the production possibilities frontier and specific factors model, to make sense of the empirical data. I found that the production possibilities frontier and the specific factor model helped support my hypothesis of the trade patterns of Japan. The models showed that the Japan’s dense population and lack of resources forces Japan to import food, natural resources, and energy products and to export finished goods.

I also studied Japan’s use of trade restrictions, specifically tariffs, to see if Japan implements low tariff rates for things that need and high tariffs for things that they can domestically produce and provide. I found that the tariff rates that Japan applies for raw materials is 2.5%, for semi-manufactured products is 9.5%, for manufactured products is 11.4%, and for all industrial products 10.1%. This data strengthens my initial thought of Japan’s trade patterns because Japan keeps tariffs low for goods they need and has high tariffs for goods it can export in order to protect its domestic firms and workers.

I also studied how recent the global financial crisis is affecting Japan’s international trade. The global economic crisis caused Japan’s exports to fall from 928 billion dollars to around 706.5 billion dollars its imports for Japan fell from 930 billion dollars to around 699 billion dollars. I tried to come up with a reason for this major drop from 2008 to 2009. I found that since the global financial crisis affected both the United States and the European Union badly, the financial crisis hurt Japan because the United States and the European Union are two of its main trading partners.

After seeing how the global financial crisis impacted Japan, I theoretically came up with the damage of this trade loss on Japan’s domestic economy. The global financial crisis affected Japan negatively because it lost a lot of production. This lost in production would cause the wages of Japanese workers to fall because their marginal products of labor would fall. The lower wages also hurt domestic companies because Japanese consumers had less disposable income and would buy less domestic goods. This theoretical examination of the global financial crisis showed me Japan’s need for trade and how trade loss can negatively effect Japan domestically.

In conclusion, by studying international trade, I discovered the goods that Japan imports and exports, its trade partners, and its need of trade. I used both empirical data and economic theory to come up with my theory that international trade is essential for Japan because of its population and its lack of arable land and resources.

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