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Basic points about Japan's economy and trading patterns

• Japan is a major economic power in the world.
• Until recently the Japanese economy was growing very quickly. Much of this growth was the result of increases in worker productivity. This higher productivity was due mainly to: increased capital (machines, etc.) per worker, advance in technology, a highly educated and skilled labor force, supportive government policies and a good world trade environment. However, Japan's miracle economy of the 1960s and 1970s may be a thing of the past as the nation copes with problems of lower growth.
• Economic growth has raised the standard of living of the Japanese people to that of the United States and higher. Income is more evenly distributed in Japan than in the United States.
• Like the United States, Japan's economy has moved from manufacturing towards services. Its companies have successfully used the countries of Southeast Asia as pools of low cost labor. The change to a more service economy also shows changing tastes of Japanese consumers.
• Japan is densely populated--it is the eighth most populated nation in the world.
• The amount of land in Japan suitable for agriculture is insufficient to produce enough food for Japan's large population. As a result, Japan imports most of its food from other countries.
• Japan lacks many raw materials needed for industry and energy, such as oil, coal, iron ore, copper, aluminum and wood. Japan must import most of these goods.
• In order to pay for these imports, Japan must export a variety of manufactured goods to other countries. Major Japanese exports include electronic equipment and cars.
• Trade with other countries (international trade) is therefore very important to Japan.
• The goods that Japan has exported have changed over time, from agricultural products to manufactured goods, textiles, steel, and cars. Japan is no longer competitive in agriculture because it has little farmland. Today simple manufacturing is too expensive because of the high wages paid to Japanese workers. Japan is also less competitive in energy intensive industries such as petrochemicals and aluminum since the country has few domestic energy resources.
• Japan purchases oil from the Middle East. Since the price of oil rose in 1973, Japan has spent more money on oil than any other imported product. Middle Eastern countries cannot use all of the products Japan needs to sell or trade for the oil it uses, so Japan must sell its products elsewhere.
• When a country sells more to one nation than it buys from it, the trade between the two countries (bilateral trade) is not balanced. In a world where many countries trade with each other, it is natural for countries to run bilateral trade deficits with some countries and bilateral trade surpluses with others. This is because trade encourages nations to specialize in the production of the things they produce well and to import those things they can not produce as well as some other country.
• The more specialized a nation becomes the more likely it is to run a trade deficit with the nations that supply the inputs (oil and raw materials in Japan's case), and to run trade surpluses with countries that buy the final products. This pattern holds particularly well for Japan. Japan buys coal and other raw materials from Australia and uses these resources to make high technology items. It can not sell enough of its finished products to Australians to pay for the raw materials it buys from them. So, it runs a trade deficit with Australia, which it pays for by running trade surpluses with other nations, for example, France.
• Japan and the United States are very important trading partners. However, there is an imbalance in their trade. This is part of the pattern mentioned above. Japan is using its trade surpluses with the United States to pay for its trade deficits with the OPEC (Organization of Petroleum Exporting Nations) nations.