JAPAN'S TRADE SURPLUS DIPPED AGAIN IN SPRING
--- by Douglas Ostrom

For the fifth straight quarter, Japan's customs-clearance trade surplus declined on a year-to-year basis in the April-June period (see Table 1). Like its predecessors, the drop was measly — only 3.2 percent — suggesting the need for caution in drawing inferences from the recent trend. In fact, the dip in the spring was entirely artificial. A high proportion of both Japan's exports and imports is denominated in dollars, yet the nation's trade figures are reported in yen. The Japanese currency, although fairly stable in recent months in the range of ¥105 to ¥110 to the dollar and averaging ¥106.6=$1.00 for the April-June quarter, was far stronger than a year ago when the comparable number was ¥120=$1.00. A more expensive yen implies that a constant value of dollar-denominated trade translates into fewer yen than otherwise. Since Japan's exports exceed its imports by a wide margin, a high-flying yen tends to depress exports more than imports, thereby trimming the surplus even in the absence of any change in export and import volume or pricing.
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Data on the physical quantity of trade tell a different story. Compared with a year earlier, worldwide export volume surged 13.3 percent in the spring, a faster pace than price-adjusted gross domestic product growth in virtually all of Japan's major trading partners. As a consequence, exporters expanded their positions in most of their main markets. At 12.5 percent, the jump in import volume was almost as impressive, suggesting that foreign producers similarly gained ground in Japan, where preliminary data indicate that industrial production increased 7 percent in the second quarter from the spring of 1999.

Trade with the United States — Japan's top market and supplier as well as one of the world's fastest-growing economies — was different still. As measured in yen, the already-huge transpacific surplus grew 5 percent as shipments in both directions rebounded modestly from their spring 1999 contraction (see Table 2). Data on bilateral trade volume, a statistical series not widely available in the past, showed a year-on-year export expansion of 7.3 percent, more than double the import increase of 3.3 percent. These figures lead to the tentative finding that Japanese manufacturers gained share in the United States, while American competitors may have lost some of their foothold in Japan to the extent that that standing is secured through trade.
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The aggregate trade statistics also obscure dramatic changes in certain product categories, both bilaterally and globally. The highly contentious matter of steel provides an obvious example. Japan's U.S.-bound steel exports have been the subject of suits and countersuits over dumping in the wake of a 1998 surge in shipments (see JEI Report No. 10B, March 9, 2000). In fact, one trade veteran has called steel one of "the last soldiers still standing" from this country's protracted trade disputes with competitors in the 1980s and earlier.

The latest trade figures suggest that, at least bilaterally, steel has continued to shrink in importance this year. It now represents a mere 1 percent of Japan's exports to the United States, totaling ¥75.5 billion ($686.4 million at ¥110=$1.00) in the first six months of 2000, or 18.2 percent less than in the same period of 1999, when a cutback already was underway.

The American steel industry and its friends on Capitol Hill might argue that the currently modest level of Japanese steel exports reflects the success of their campaign to get Washington to crack down on unfairly priced made-in-Japan products through a raft of dumping complaints and other actions. Japanese officials counter that what really has happened is that steel shipments have been redirected in response to the deluge of U.S. antidumping cases. In this view, growing global demand boosts Japan's steel exports — if not to the United States, then to other nations.

The customs-clearance trade data are consistent with this interpretation. Worldwide, steel constituted 3.1 percent of Japan's exports through mid-2000, three times the share of shipments to the United States. Even in yen terms, global steel exports expanded 8 percent in the first six months of this year in contrast to the large drop in U.S. sales. Perhaps most significantly, international tonnage surged 14.8 percent, a rate much higher than the increase in global GDP and consistent with the argument that some portion of the hike in Japanese exports to third countries is replacing the supply previously diverted here.

The January-June trade figures also provide evidence for another predicted impact of antidumping duties: a wide divergence of prices from the world level in the country imposing these penalty tariffs. In fact, steelmakers' receipts per ton of steel (in yen) rose 4.9 percent for shipments to the United States but dropped 6.8 percent globally in the first half of 2000. The implication of this gap is that American steel users may be increasingly disadvantaged compared with counterparts in other nations that are able to buy Japanese-made steel on more favorable terms.

More broadly, the steel example is not inconsistent with the impression drawn from Japan's latest quarterly trade data of signs of life in the world's second-largest economy. Reflecting healthier economies in Europe and Asia and continued strength in North America, exports are robust, feeding domestic demand. But imports also are up, perhaps signaling expanding demand outside the foreign sector as well. The result is relatively little change in Japan's yawning international trade imbalance but additional evidence that the economy is, in fact, recovering.