Rabid Mercantilists? Not The Japanese
Professor Laura D'Andrea Tyson seems to have evolved her view of Japan on the basis of a perception that Japan has a "deep-seated mercantilist tradition" ("Don't worry: China isn't following in Japan's footsteps," Economic Viewpoint, Apr. 20). I beg to disagree. Japan has almost no natural resources. It also has an awful lack of agricultural products, except for rice. After all, we Japanese must import those items from abroad for our survival. To pay for imports of such essential items, we must export value-added goods. Indeed, this is Japan's "deep-seated" trade structure.
But does this constitute a mercantilist tradition? The Japanese current-account surplus is a by-product of its industrial production activities, without any mercantile instinct of buying things for peddling. Furthermore, the seemingly persistent surplus can never be a traditional pattern, as it is a relatively new phenomenon in Japan's economic history.
We know that we should buy more from abroad. If there aren't any materials or products to import additionally and immediately from other countries, foreign securities can be something for us to buy now--and Japanese investors, institutional and individual, have been buying a considerable amount of them, including U.S. Treasury bonds. Will Tyson find this as a new attribute of Japanese mercantilism?
I believe that coming to the conclusion that "China is becoming the dominant economic power in post-crisis Asia" is stretching it a bit when you consider that Japan's economic size is approximately seven times larger than China.
In terms of incremental gross domestic product, 10% growth in China is equal to 1.5% in Japan, according to the Japanese government. Japan accounts for a little over 60% of the entire Asian economy, with nominal GDP more than double that of China, the ASEAN 4, and India combined. Although I agree with Tyson that China is moving much faster than Japan on the deregulation front and that foreign direct investment in Japan clearly resembles the strategy of a deep-seated mercantilist nation, the rise of China will be more delayed than people realize. China and the Asian region are still very dependent on Japanese foreign direct investment and technology transfer. They are also very dependent on Japanese organizational skills.
The Japanese have built up formidable production networks throughout the region--nothing Western comes close in comparison. The Japanese strategy appears to include a new "head east" policy based on developing the region, a continuation of a policy initiated more than 100 years ago. It will eventually diversify its political and economic risk away from the U.S. and Europe as a result.
Until China rises, the outside needs to study carefully Japan's policy prescriptions. The absence of true change in Japan would have a far-reaching negative global impact. Japan is still the world's largest credit exporter, and it has the largest pool of private savings in the world. In light of the distinct possibility of Japan's inability to evolve, the U.S. would be wise to cultivate strong bilateral relations with the Chinese.
The U.S. and China have much more in common with each other (geographic size, culture, individualism, profit motivation), and Japan understands this. An enhanced Sino-U.S. relationship would put a great deal of productive pressure on Japan to change.