Returning Customers: US is Japan’s Top Export Market while Sales to Japan Hit Record High in 2012

US-Japan annual trade in goods, 2003-2013. Click to Enlarge

When Japan’s fiscal year ended on March 31st, the United States had regained its place as the nation’s best customer. In the months and years of recovery that followed the 2008 Global Financial Crisis, China had surpassed the US as the top destination for Japanese goods. While the US still remains Japan’s 2nd largest partner in terms of total trade, “Japan Inc.” saw a significant decrease in exports to China in 2012 while sales to the US steadily rose.

Annual statistics released by the Japan External Trade Organization (JETRO) revealed that exports to China dropped 10% from the previous year, compared to an 11% increase to the US. While some of this is due to boycotts of Japanese products in China in protest over the ongoing dispute over the Senkaku/Diaoyu islands, some analysts point out that the slipping of Sino-sales began earlier in the year as China’s economy shows signs of slowing. Meanwhile JETRO reported $141 billion in goods, representing 17% of total shipments, were exported to the US last year.

As for the US side, trade with Japan has been steadily recovering since the 2009 recession. According to the most recent data from the Department of Commerce, in 2012 US-Japan two-way merchandise trade grew 11% in one year to $216 billion. This rally not only finally reached, but exceeded pre-crisis levels.

This growth stemmed not only from an increase of Japanese sales to the US, but US exports to Japan grew 7% to a record high of $70 billion. Japan continues to be America’s 4th largest trading partner after Canada, Mexico, and China. In 2012, nearly 6% of US total merchandise trade worldwide was with Japan.

2012 US-Japan Trade Composition and Top Growth Categories. Data source: US Department of Commerce. Graphic by: Grace Ruch, East-West Center

Contention Lies in Composition

That the US-Japan trade relationship matters to the economies of these two countries is not in dispute. The economic relationship – marked by high value and high trade volume - can cause ripples in both domestic economies and so the prospect of further opening US and Japanese markets to each other generates considerable debate. On April 24 the United States Trade Representative informed the Congress of its intent to include Japan in the negations on the Trans-Pacific Partnership free trade agreement, which has prompted several lawmakers to voice concern.

While nations nominally always want to trade more, it is sometimes a matter of what is being bought and sold that result in trade tensions. While the Financial Times analysis of the news of the US regaining the title of Japan’s top customer pointed to increased sales of motor vehicles and parts and electrical machinery as signs that the US economy is picking up, the American automotive industry has a less sanguine view of this news. In 2012, automotive goods (both vehicles and parts) accounted for 75% of Japan’s exports to the US. As a result, the industry has been among the most vocal opponents to Japan joining TPP, and Senators representing auto-producing states have expressed cautious hopes that the pact will remove barriers preventing US automakers from the same success in exporting to Japan.

Meanwhile, Japanese lawmakers face similar opposition from domestic industries as they considered the possibility of joining the trade talks. The US is Japan’s largest provider of agriculture imports; in 2012 nearly 20% of US goods exports to Japan were food and agricultural products. The small but politically powerful agriculture sector in Japan fears that joining the talks would destroy farming in Japan and voices concerns over food security if the land-scarce island nation came to rely on foreign farms for its food supply.

While the delicate issues of sedans and sugar will be discussed by both nation’s trade representatives at the TPP negotiations this summer, the prospect of a more open trade relationship between the US and Japan, and the other member nations of the pact, is being viewed by many government officials and business leaders alike as an opportunity to boost the growth of two of the world’s largest economies.

Nebraska Senator and former U.S. Agriculture Secretary Mike Johanns, representing a state with increasingly strong trade ties to Asia, summed up these hopes and excitement in his recent statement on the Japan TPP decision: “I congratulate Japanese and American leaders for taking this important step in deepening our already strong trade and diplomatic relationships.”