Trade is without a doubt the lifeblood of Japan’s economy. As an island nation with few natural resources, Japan relies heavily on imported raw materials to fuel its centers of production. In the years following World War II, Japanese determination to catch up with the industrialized nations of the west led to a sense of dependency and vulnerability to the nations on which Japan relied for its imports. In direct response to this, the Japanese government instituted a series of economic policies encouraging a shift in production away from simple, labor-intensive exports such as fabrics to more sophisticated products such as machinery, gadgetry, automobiles, and electronics.
Rather than allow free growth in production of a wide range of goods, the Japanese government utilized an expansive toolkit of trade protection measures, subsidies, de jure and de facto exemptions from antitrust statutes, labor market adjustments, industry-specific assistance, and tax incentives throughout the 1950s and 1960s to target technological growth and production in a few areas which they felt could produce vast quantities of high-quality goods at competitive prices.
Specific attention was paid to the industries of iron and steel, shipbuilding, machine industries in general, heavy electrical equipment, chemicals, automobiles, petrochemicals, and nuclear power, which both policymakers and the public felt Japan should have. In recent years, new attention has been paid to the emerging computer and semiconductor industries.
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These and other knowledge-intensive industries have been highly encouraged by the government, which has supported research and development into more rapid, technologically advanced means of production. Simultaneously, the government has also promoted a controlled decline of more competitively-troubled industries such as textiles, shipbuilding, and chemical fertilizers via measures such as tax breaks for corporations which retrain workers to work at other tasks.
In concert with this careful internal curation of its productions centers, the Japanese government has kept careful control over imports to protect its native businesses. In the 1950s, Japanese imports far outpaced exports, leading to chronic trade and current account deficits. As Japan had no desire to devalue its currency under the Bretton Woods system of fixed exchange rates in place in the international community at the time, Japanese officials responded with tariffs on imports and stiff quotas.
Productivity boomed as a result, and by the year 1960, Japan accounted for 3.6% of all exports by noncommunist countries. The Ministry of Finance played a central role in this postwar economic swell, advocating a growth-first mentality with a high proportion of government spending dedicated to capital accumulation. Paired with minimum government spending overall, this kept both taxes and deficit spending down, freeing more money for private investment.
Throughout the 1960s, Japan’s rapid productivity growth made Japanese products more competitive in world markets at the fixed exchange rate for the yen. The deficits of the previous decade disappeared entirely by the mid-1970s. Faced with mounting international pressure to dismantle the trade barriers, Japan finally began a shift towards less government restriction.
The beginning of the 1970s saw the end of the fixed exchange rate for the yen, brought about by skyrocketing Japanese trade and account surpluses, and a strong rise in its value under the new floating rate system. While production continued to grow, so did dependence on raw material imports. The 1973 oil crisis fueled a sense of uncertainty in the market after crude petroleum prices rose and supply became uncertain. Suddenly, Japan faced radically higher bills for imports of raw materials and energy.
The new currency exchange rates and the upswing in raw material prices meant the surpluses of the decade’s beginning were largely lost. The second oil price shock in 1979 left large trade deficits in its wake. It also contributed to a greater shift away from heavy industry to development of new fields in the computer and semiconductor industries. Despite these recent challenges, exports have continued to expand at a high rate of 21 percent annually, and growing Japan’s exports remains a government priority.
