Trade Imbalances

In the two decades leading up to the 1980 s, Japan's balance of payments remained roughly in equilibrium, and the merchandise trade account surplus was approximately $35 billion (in the 1950's it was largely in deficit). By 1983, riding a crest of phenomenal productivity and investment growth, Japan's trade surplus in one year equaled that of the previous two decades. In 1987, the trade surplus approached $101 billion the largest in recorded economic history.

In a more narrow US-Japan context, in the 15 years prior to 1986, two-way merchandise trade increased to $115 billion, from about $54 billion a growth of $61 billion. Japan's exports to the US accounted for $53 billion of this S61 billion, and US exports to Japan accounted for only $8 billion, or less than 13 per cent. Of this low amount, almost half, or S3.5 billion, came not from car exports, not from sophisticated electronics, but from gold, sold for re-export from Japan.

Peter Drucker ⁽⁵⁾ has called Japan's approach to targeting export sectors as adversarial trade , as distinct from competitive trade by which both sides gain. Whether this distinction has much validity is a moot point, rather ignoring the fact that the United States ran a trade surplus in almost every year after the Second World War to the start of large annual deficits beginning in 1981. The basic statistics on Japan's trade machine are well known a $101 billion trade surplus on current account, and, while exports account for only 11 per cent of GNP, compared with 30 per cent for Canada and 27 per cent for West Germany, imports are only 6.5 per cent (versus 21 per cent in West Germany). Moreover, only 25 per cent of Japanese imports are in manufacturing and, at 2.4 per cent of GNP, are the lowest among the industrial countries

Only five years ago, Japan's current account surplus was about $7 billion a year; in 1987, the surplus was more than $7 billion a month. Japan's strategy at the Economic Summits has been one of muting direct criticism of Japanese behaviour.

It would be quite wrong and misleading to single out specific Japanese moves in isolation. To a degree few Westerners understand or appreciate, Japan has made its macropolicy agenda subordinate to both global market forces and to the realpolitik of the US, and it has done so profitably and with long-term success. Unlike Canada and the United States, for instance, Japan reacted to the 1973 and 1979 oil crises with a vengeance; shifting productive capacity away from energy-intensive sectors like aluminum-smelting, heavy chemicals, refining, petrochemicals, and iron and steel, into knowledge-intensive sectors ranging from consumer electronics to pharmaceuticals and fashion.

Japan has adapted with incredible flexibility to a rise in the yen (54 per cent since the Plaza Agreement in September 1985 - against the US dollar). The corporate tactics vary: reducing break-even points by cost-cutting, automation, dropping low margin products, building in value-added, increasing sourcing from lower wage countries, more aggressive sales at home, and the like. Together with a massive investment into overseas production, the Japanese economic machine has shifted towards new knowledge-intensive sectors, towards truly Japanese multinationals to rival their American counterparts in the next five years, and towards a sophisticated service economy dominated by the financial sector (banking, securities, insurance, investments, offshore banking, as well as related areas such as real estate and financial consulting)⁽⁶⁾.

Canada's position at the Economic Summit has evolved both as the domestic economy has changed, and as the domestic policy agenda shifted as a function of global forces. For example, the political rhetoric in the Summit communiqué have clearly leaned towards market forces: less reliance on government, liberalized capital markets, and fiscal restraint. Canada's emphasis on exactly the opposite approach during the late 1970's and early 1980's weakened her role in the gathering momentum to economic coordination and illustrated an obvious but telling point: domestic performance in the international pecking order is not without correlates of influence.

Moreover, while the Summits themselves set the tone and the broadbrush policy direction, it is the work in the subsequent meetings and policy forums where substantive decisions are made and where a country's voice is heard. (Before each Summit, the Foreign Ministers and the Finance Ministers of the OECD meet in Paris. Each fall, Summit Finance Ministers meet in Washington as part of the IMF and World Bank meetings. Between the Summits, Trade Ministers of the Quad the US, Japan, Canada, and the EEC meet as part of The quadrilateral round of talks.)