Mounting Japan’s Trade Deficit

“Export or Die”, a phrase that Americans and other countries seem to neglect, has become an emergent dilemma in Japan. An annual trade balance report released last Thursday triggered a sense of crisis in Japan by displaying a huge trade deficit. This is the second straight year that exports have been in the red for Japan. As an export-reliant country, Japan is going to be hit hard by this news without doubt.

Japan has few of the natural resources needed by a modern economy, and is also deficient in food production. These critical resources must all be imported. Thus, exports are a matter of survival for Japan since it has to pay for the imports somehow. According to MOF figures released October 22, for the month of September Japan’s imports increased by 4.1 percent. In the same month, Japan’s exports declined by 10.3 percent compared with the year before. There are several reasons that contribute to this huge trade gap.

First, the global economic crisis set off a fall in Japanese exports. Most of the countries in the world are too poor to buy Japanese products. Eastern Europe, the main traders with Japan, is undergoing a major economic hardship. Also, the bitter territorial spat with China exacerbates the trade deficit. China, Japan’s biggest trading partner, imported less of Japanese products after Japan claimed the possession of the Diaoyu Island because of a dispute over the island. Exports to China soon declined. Moreover, the lack of energy resources after the Fukushima crisis created the need for imports. Japan largely imports oil and gas to compensate the energy needs after shutting down the nuclear plants. Japan has no other way to address the energy crisis but to import.

How can it reverse such a bad economic situation is becoming an urgent and tricky question lying in front of the Japanese. One step would be to quickly open its market by destroying tariff barriers. Japan should create trade agreements like that Trans Pacific Partnership (TPP) and the Japan-China-Korea Free Trade Agreement. By doing this, other countries would be more willing to trade with Japan, and therefore it could expand its export and reverse the pernicious trade deficit.

The serious trade imbalance is worrying for Japan. Japan should really hurry up to reverse, or at least, slow down the growing trade deficit. This will require Japan to make more urgent attempts to accomplish barrier-lowering trade agreements with other countries. At this point, Japan has no choice. It must find a way to increase exports by creating better trade relationships with other countries.