In 2011, the year of the Great East Japan Earthquake, the Japanese economy had a trade deficit of 2,564.7 billion yen, its first deficit in 31 years. It registered a 10,795.5 billion yen trade surplus in 2007 as the growth reliant on external demand continued, but the surplus fell to 6,634.7 billion yen in 2010 following the Lehman Shock and turned to deficit in 2011, as noted. The deficit rose sharply to 11,468.4 billion yen in 2013.
Export value stayed about flat in 2010-2013, totaling 67,399.6 billion yen in 2010, 65,546.5 billion yen in 2011, 63,494.6 billion yen in 2012 and 69,774.2 billion yen in 2013. But import value increased in these years, from 60,765.0 billion yen, to 68,111.2 billion yen, 70,688.6 billion yen and 81,242.6 billion yen. Contributions to import growth by product over the period were highest from crude oil at 23.9% (imports +46.0%), followed by LNG 18.7% (+98.9%) and electrical machinery 11.2% (+25.6%). However, growth in import volume was only -1.5% for crude oil and 24.0% for LNG. The value gains were largely a reflection of higher prices due from yen weakness. In 2012-2013, import value rose rapidly as the yen depreciated, while export growth was moderate despite yen weakness. The declining competitiveness of export industries was especially detrimental.
Using Trade Statistics from the Ministry of Finance, an analysis of the trade balance for electrical machinery by item and trends in the trade specialization coefficient reveals that the total trade surplus for electrical machinery fell steeply from 4,549.4 billion yen (trade specialization coefficient 21.92, same hereafter) in 2010 to 3,611.2 billion yen (18.44) in 2011, 2,967.3 billion yen (14.95) in 2012 and 1,744.1 billion yen (7.80) in 2013. By item in 2013, the AV equipment trade deficit, which has continuing since the 2000s, was 509.2 billion yen (-27.35), and the computers and computer components deficit (not included in trade statistics for electrical machinery) was 858.4 billion yen (-21.55), both large deficits. Moreover, in recent years, the trade deficit for telecom equipment has increased rapidly even as inputs have grown in tandem with smartphone proliferation. The deficit increased from 640.9 billion yen (-38.78) in 2010 to 1,057.6 billion yen (-56.88) in 2011, 1,677.6 billion yen (-67.83) in 2012, and 2,147.1 billion yen (-74.23) in 2013. In addition, the trade surplus for electronic components (trade specialization coefficient) declined from 1,802.5 billion yen (33.84) in 2011 to 1,560.2 billion yen (30.48) in 2012 and 1,107.4 billion yen (18.46) in 2013. The data show that overseas products are making gains as Taiwanese firms pick up market share in the smartphone component area, and that trade surpluses are disappearing even in the electronic components field. The data clearly illustrate that the Japanese electronics industry has lost competitiveness recently even in the smartphone and electronic components fields after having already become uncompetitive in TVs and personal computers earlier.
In contrast, the automobile industry’s decline in trade balance and trade specialization coefficient have been minor. The industry remains internationally competitive. Domestic automobile production fell from 11.58 million vehicles in 2008 to 7.93 million in 2009 after the Lehman Shock, but it rebounded to 9.63 million in 2010 and then stayed flat, coming to 9.63 million in 2013. Since 2010, export volume fell from 4.84 million in 2010 to 4.68 million in 2013, but export value increased by 13.5% over the period from 8,204.2 billion yen to 10,414.2 billion yen amid a definitive shift to luxury car exports. Meanwhile, although overseas production by Japanese automakers rose 27.1%, from 13.18 million vehicles in 2010 to 16.76 million in 2013, the value of auto parts exports increased just 12.7%, from 3,083.3 billion yen in 2010 to 3,476.2 billion yen in 2013. The correlation between overseas production and parts supply from Japan has been waning. Namely, domestic production bases are hollowing out as Japanese parts makers expand operations overseas for supplying automakers locally. On this point, according to interviews with primary subcontractors of the major Japanese automakers, parent manufacturers have finished building their own supply systems to overseas plants for parts and materials produced overseas since 2012. In November 2013, Toyota Motor announced new policies for its production system for hybrid cars in the Chinese market, saying it would shift from supplying core components from Japan to a development, parts supply, and production system inside China itself. As such, even in the auto industry, where Japanese companies have stayed internationally competitive, systems are being built for increasing production at overseas plants from supply chains relocated there. Ripple effects for production and employment in Japan are clearly losing their stamina. General machinery, mainly industrial equipment, is another industry that is still competitive internationally. Here, production bases are being transferred overseas as well.
In the late 1970s and early 1980s, when Japan achieved Economic Superpower status on the back of rising exports, the electrical machinery and automobile industries together accounted for about 80% of growth in export value. Both industries expanded their domestic production bases, leading to rising production and employment in Japan through parts and materials supplied to these industries, and fueling growth in the domestic market and economy.
Japan cannot let its trade deficit grow and continue uncontrolled, given that it does not have a reserve currency like the United States, its finances require large consumption of government bonds, and it relies on food and energy imports. The old structure under which reliance on food, energy and raw material imports and trade deficits in related product categories were offset by surpluses in export industries, principally electrical machinery and automobiles, or by trade surpluses that exceed the above-mentioned deficits, is no longer sustainable. Meanwhile, the expansion in production bases overseas in export industries where Japan still has the domestic production capacity to remain competitive internationally, is leading to lower production and employment in Japan. This is causing serious stagnation in the Japanese economy as domestic markets shrink and sales decline in domestic demand-oriented industries.
To consider how to find a breakthrough to the current situation, here I would like to propose addressing the issue from the standpoint of the international balance of payments. Given the globalization of production and corporate activities now underway and the trends of the electrical machinery and auto industries facing the realities noted above, pursuing larger trade surpluses in export industries alone is unlikely to improve the balance. Instead, to achieve a balanced equilibrium without relying on trade surpluses, policies that limit imports are needed. In short, I think initiatives are needed for increasing domestic production of food, energy and raw materials that have been dependent on imports. In concrete terms, government support measures are required for connecting domestic production capacity which has been reflected in the competitiveness of export industries with technologies used in food production and renewable energy and materials development, including recycling, for industry restructuring.