International Economic Relations

International Economic Relations

JAPAN IS BOTH a major trading nation and one of the largest international investors in the world. In many respects, international trade is the lifeblood of Japan's economy, and it is the window through which many people in the United States view Japan. Imports and exports totaling the equivalent of nearly US$522 billion in 1990 meant that Japan was the world's third largest trading nation after the United States and the Federal Republic of Germany (West Germany). Trade was once the primary form of Japan's international economic relationships, but in the 1980s its rapidly rising foreign investments added a new and increasingly important dimension, broadening the horizons of Japanese businesses and giving Japan new world prominence.

Japan's international economic relations in the first three decades after World War II were shaped largely by two factors: a relative lack of domestic raw materials and a determination to catch up with the industrial nations of the West. Because of Japan's lack of raw materials, its exports have consisted almost exclusively of manufactured goods, and raw materials have represented a large share of its imports. The country's sense of dependency and vulnerability has also been strong because of its lack of raw materials. Japan's determination to catch up with the West encouraged policies to move away from simple labor-intensive exports toward more sophisticated export products (from textiles in the 1950s to automobiles and consumer electronics in the 1980s) and to pursue protectionist policies to limit foreign competition for domestic industries.

The sense of dependence on imported raw materials was especially strong in Japan during the 1970s, when crude petroleum and other material prices rose and supply was uncertain. Throughout much of the postwar period, in fact, Japanese government policy has aimed at generating sufficient exports to pay for raw material imports. During the 1980s, however, raw material prices fell and the feeling of vulnerability lessened. The 1980s also brought rapidly rising trade surpluses, so that Japan could export far more than was needed to balance its imports. With these developments, some of the resistance to manufactured imports, long considered luxuries in the relative absence of raw materials, began to dissipate.

By the 1980s, Japan had caught up. Now an advanced industrial nation, it faced new changes in its economy, on both domestic and international fronts, including demands to supply more foreign aid and to open its markets for imports. It had become a leader in the international economic system through its success in certain export markets, its leading technologies, and its growth as a major investor around the world. These were epochal changes for Japan, after a century in which the main national motivation was to catch up with the West. These dramatic changes also fed domestic developments that were lessening the society's insularity and parochialism.

The processes through which Japan is becoming a key member of the international economic community continues in the 1990s. Productivity continued to grow at a healthy pace, the country's international leadership in a number of industries remained unquestioned, and investments abroad continued to expand. Pressures were likely to lead to further openness to imports, increased aid to foreign countries, and involvement in the running of major international institutions, such as the International Monetary Fund. As Japan achieved a more prominent international position during the 1980s, it also generated considerable tension with its trade partners, especially with the United States. These tensions will likely remain, but they should be manageable as both sides continue to see economic benefits from the relationship.

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