Kobe Tower and cityscape of Port of Kobe, Japan. [Image Source: Getty Images/ Sean Pavone]

US-Japan Trade Grows Despite Disasters; Goods Trade Worth Nearly $200B in 2011


In the weeks that followed the March 11, 2011, Tohoku earthquake, tsunami, and nuclear meltdown, analysts tried to make sense of what the disaster would mean for business with one of America’s largest trade partners. Some warned that shipment disruptions of US exports to Japan would hurt the overall US economy, especially providers of agricultural goods with short shelf lives, such as fruits and vegetables. Others predicted that after an initial dip, trade would rebound and maybe see a boost in Japanese demand for reconstruction materials, such as lumber, and for fossil fuels, to supplement the energy gap left by idled nuclear reactors.

International trade figures for last year released by the Department of Commerce favor the positive view: while trade between the US and Japan saw a slight drop in the months immediately following the disasters, two-way merchandise trade reached $194 billion in 2011, a 7% increase over the previous year. This is not yet a return to pre-financial crisis levels, but it shows that despite a major shock, bilateral trade volumes continue to recover from the depths of 2008-2009.

Japan continues to be America’s 4th largest trading partner after Canada, Mexico, and China. In 2011, 13% of US total merchandise trade worldwide was with Japan. US exports of goods to Japan were valued at $66 billion, up nearly $6 billion, or 10%, from the year before.

For Japan, the US was second only to China in both imports and exports. Shipments to the US accounted for 15% of their total exports in 2011, more than the entire EU combined. The Japan External Trade Organization (JETRO) reported that $127 billion in goods, representing a 6% increase, were exported to the US last year.

Composition Breakdown

Despite the March 11 disasters, the composition of two-way goods trade in 2011 remained largely similar to the previous year. According to US government figures, the bulk of US sales to Japan were accounted for by machinery and transportation equipment, food and livestock, chemical products (including pharmaceuticals), manufactured goods, and raw materials export categories; worth a combined $51 billion. The share of the food and livestock rose by 2% to become the second largest export category.

According to the US International Trade Commission, a number of sectors saw a significant uptick in sales to Japan between 2010 and 2011 that greatly exceed pre-recession exports, suggesting that US businesses have benefited and contributed to disaster relief and recovery in Japan.

The damage to the mostly agricultural Tohoku region appears to have prompted a boost in imports of US agricultural goods. While sales of some fresh vegetables did fall slightly, the crisis did not affect America’s ranking as Japan’s largest fruit provider, as US exports of cooked/preserved fruits, vegetables, nuts, and fresh fruit grew. Exports of beef and dairy products each rose 40% as Fukushima cattle were either abandoned or removed from the food market by government orders over fears of contamination.

Raw materials for reconstruction such as wood also saw significant increases, with pre-fabricated products such as plywood growing over 166%. As Japan began to import more fossil fuels to offset the loss of energy from its idled nuclear power plants, US exports of coal to Japan jumped 160%, an increase of nearly $745 million.

As with US exports to Japan, in 2011 Japan’s exports to the US remained largely the same in broad composition as in 2010, with machinery and transportation equipment accounting for almost three fourths of all exports to the US. According to figures prepared for the Government of Japan by the Japan Tariff Association, the US remains Japan’s top market for electronics, power generating equipment, and transportation equipment (both motor vehicles and parts). Despite supply disruptions and damaged stock at automotive plants in Tohoku, motor vehicle exports to the US, valued at $41b in 2011, dropped only 1%.

A Tale of Two Deficits

As the final trade tallies for 2011 came in, the Japanese economy posted its first trade deficit in decades, spurred by the trifecta of the March 11 disasters, global economic slowdown, and a strong yen. Energy imports, particularly of Liquefied Natural Gas (LNG), were the primary cause of Japan’s trade deficit overall, yet most of these purchases were from other markets and ultimately the US still bought more products from Japan than it sold. As a result, the US goods trade deficit with Japan widened 4.6% to $62.6 billion, still somewhat less than its pre-recession level in 2008.

The effects of the events of March 11 will likely be far reaching. Japan’s demand for LNG may grow as it works to determine the future of its energy program, and US gas companies have already signed deals to sell to Japan. Meanwhile, plans by Japanese automakers to increase production of vehicles and parts at their US plants could reduce the impact of automotive imports on the US-Japan trade deficit. The final effect remains to be seen, but the importance of US and Japan as trading partners continues.