During the first half of the 20th century, Japan’s exports were dominated by the textile industry (cotton and silk), which is the country’s oldest industrial branch. After the end of the Second World War, the Japanese invested heavily in heavy industry, and steel mills and shipyards contributed greatly to the recovery of the economy.
By the 1970s, Japan had become the world’s leading steelmaker. However, the global energy crisis at the same time hindered the continued expansion of the steel industry. The shipbuilding industry also experienced problems as demand for tankers fell, and many shipyards collapsed. Instead, Japan invested in high-tech, less energy-consuming areas and soon came to the forefront in industries such as electronics, optics, cars and computers.
Increased demand for small and fuel-efficient cars made the car industry world-wide. In recent years, China has taken first place, but Japan is still one of the world’s largest manufacturers of motor vehicles. Japan’s largest passenger car manufacturer is Toyota.
High quality and low prices have made Japan a world leader in electrical appliances and home electronics as well. Japanese digital cameras, TVs, music systems and home appliances are sold around the world – but competition with producers in other countries has intensified. The state and industry are also jointly investing in challenging the US in future industries such as advanced computer technology, industrial robots and the space industry. Such purposeful industrial policy, with government and private large companies in close collaboration, has helped to make Japan one of the world’s leading industrial nations.
- COUNTRYAAH: List of top trading partners of Japan. Includes countries that imported most shipments from and exported most goods to the country.
Without extensive trade, the Japanese “miracle” would not have been possible and Japan is one of the world’s major trading nations. Traditionally, US trade has been most important for the Japanese, with trade with China in second place. However, the Chinese economic progress has changed the picture. In 2004, China (with Hong Kong) for the first time passed the United States as Japan’s largest trading partner.
Until the middle of the 1960s, Japan had a trade deficit, but then trade went on for a long time with a large surplus. In simplified terms, Japan’s traditional trade patterns have been imports of raw materials and energy and exports of refined finished goods. Already in the 1960s, other countries began to protest that cheap Japanese exports knocked out steel mills, textile factories and shipyards in the west, while Japan kept down its imports of foreign products. The imbalance became a foreign policy problem; governments in the west did not accept that domestic markets were flooded with Japanese goods and Japanese capital. Japan was accused of unfair trade practices and for excluding other countries from its own domestic market. Early criticism forced Japan to impose “voluntary” export restrictions on goods such as cars, steel, textiles and electronics.
The remission from Japan helped to reduce the trade surplus. One way for the Japanese to deal with the problem was to expand their production by acquiring foreign companies or setting up factories in, for example, the EU countries, the US, South Korea and Taiwan. In recent years, Japanese companies have been investing more and more in Asia.
For many years, an even larger Japanese surplus in trade was curbed by the yen’s value increase, which cost the country’s export goods abroad. In the West, a high yen exchange rate has long been seen as an effective means of Japan’s trade surplus. In 2012, the Japanese yen’s relief began to weaken the yen.
In 2011, however, imports of goods began to exceed exports and thereafter the trade deficit grew sharply. As a result of the 2011 natural disaster and the closure of the country’s nuclear reactors, fossil fuel imports rose so much that it accounted for about a third of Japan’s total import note. At the same time, the euro crisis and the economic problems in the Western world dampened demand for Japanese export goods. But in 2016, the trade balance again showed a surplus, which was not least due to falling energy prices.
Japan joined when twelve countries around the Pacific signed the Free Trade Agreement TPP (Trans-Pacific Partnership) in 2016. One purpose of the agreement was to counterbalance China’s dominance in Asia. In its original form, the TPP would have covered 40 percent of the world economy, but it failed before it came into force when the US withdrew after Donald Trump’s entry into the presidential post. However, the remaining eleven countries, which together account for about 14 percent of the world economy, decided to stick to the agreement. After some adjustments, they signed in March 2018 under the TPP-11, or CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Parthership). The agreement means that tariffs will be lowered between the countries and, according to the hopes, will contribute to increased growth. CPTPP includes economic heavyweights such as Canada and Australia.
When the US withdrew from the TPP, Japan and the US initiated bilateral negotiations. By the fall of 2019, both countries had reached an agreement on an agreement that reduced or reduced tariffs on 90 percent of agricultural commodities. The agreement did not include rise exports from Japan while the United States promised not to impose additional duties on Japanese cars or any restrictions on the number of cars imported. Japan, in turn, promised not to impose any import restrictions on US rice and butter.
After several years of negotiations, in July 2018, Japan, the world’s fourth largest economy, entered into a comprehensive free trade agreement with the EU, which in its entirety is the world’s largest economy. The agreement covers almost a third of the global economy and affects about 600 million people. Japan mainly imports dairy products from the EU, which, among other things, buy Japanese cars. Companies in the EU export goods and services to Japan worth over $ 100 billion annually.
FACTS – FOREIGN TRADE
US $ 735,690 M (2018)
US $ 724 465 M (2018)
US $ 174,719 million (2018)
Commodity trade’s share of GDP
30 percent (2018)
Main export goods
vehicles, machinery, electronics, chemicals, metals
Largest trading partner
China including Hong Kong, USA, South Korea, Taiwan
Conflict with China
China and Japan end up in diplomatic conflict after a Chinese fishing boat collided with Japanese military vessels near disputed islands in the East China Sea.
Loss for DPJ
DPJ loses the choice to the upper house.
Prime Minister resigns
Prime Minister Hatoyama resigns after being forced to break an election pledge to relocate an unpopular US airbase on Okinawa. Finance Minister Naoto Kan takes over the Prime Minister’s post and party leadership. The Social Democrats leave the government coalition in protest of the Okinawa settlement (see Foreign Policy and Defense).