In Memoriam: Japan's Export Champion Days

♠ Posted by Emmanuel in ,, at 7/29/2014 01:30:00 AM

 In times past, there was an entire economic school of thought essentially based on "being like Japan." We called it export-led industrialization. Through a combination of government subsidies for championed industries, high import tariffs in these industries, export incentives and foreign exchange reserve accumulation to keep one's currency artificially weak, the hope in emulating these practices was, of course, to be like Japan someday. Exports=good, imports=bad. Books like Chalmers Johnson's MITI and the Japanese Miracle extolled the virtues of industrial policy. Through the looking glass we have arrived at "Japan someday," and the view is not necessarily pretty.

I have previously written about how Japan has had trade deficits for umpteen months straight. Partially, this is due to its energy bill surging from fuel imports as it mothballed nuclear power plants in the wake of the Fukushima incident. However, there is more to this story: I have also written about how Japanese firms have moved overseas since the 1985 Plaza Accord that involved the US pressuring Japan to strengthen its currency. For one thing, this movement has led to the creation of "Factory Asia" in which Japanese multinationals have their production facilities spread throughout Asia. Even in the wake of recent yen weakness, Japan's exporting volumes have not really returned home:
[T]he value of Japan’s exports is 23 percent below a March 2008 peak, even as those of South Korea, the U.S. and Germany have grown. The yen has lost 16 percent in value against the dollar since Prime Minister Shinzo Abe took office in December 2012. That hasn’t been enough to spur growth in outbound shipments.  
In other words, while Japan's trade balance is negative, the value of exports has not really rebounded fro its 2008 high. The government's excuse is that the demand for goods overseas is weak--especially in emerging markets:
Japan’s government and central bank have blamed weak overseas demand, especially in emerging markets, for export sluggishness. This weakness is negative for an economy that suffered a blow to domestic demand from an April sales-tax increase. 
However, the real story of Japanese exports not increasing in spite of a weaker currency during PM Shinzo Abe's second spell in office is precisely because most manufacturers had already relocated--especially during years when the yen was strong:
“Japan is being left behind in the export recovery mainly because Japanese companies accelerated the shift of production abroad when the yen appreciated after the Lehman shock,” said Toru Suehiro, a market economist at Mizuho Securities Co. in Tokyo. “The loss of global market presence by Japan’s companies, especially electronic appliance makers, is also a factor.”

The impact of the move overseas by Japanese companies is striking in the U.S. automobile market, said Suehiro. U.S. sales for Japanese automakers in the six months through June rose 6.2 percent from a year earlier to 3.04 million, according to researcher Autodata Corp. Auto exports from Japan to the U.S. for the same period were down 8.5 percent, according to finance ministry data. Honda Motor Co. became a net exporter from the U.S. last year, shipping more vehicles out of that country than it imported from Japan, and both Honda and Toyota Motor Corp. set production records at their North American assembly plants in 2013.

Japan’s motor-vehicle exports to the U.S. declined 17 percent from 2008 through 2013, with total automobile output in Japan dropping 17 percent, according to the Japan Automobile Manufacturers Association.
I guess they'll have to rewrite those textbooks pretty soon when they get to the part about citing Japan as the archetypal example of export-led industrialization. Alas, those days are gone.