Japan and China in East Asian Integration

15. Japan and the China Market

305 Japan and the China Market 305 CHAPTER 15 Japan and the China Market Settlement of Japan-China Trade Dispute Vital1 Trade Friction between Japan and China As if the ongoing trade war between Japan and China is not enough, the Japanese history textbook issue, former Taiwanese President Lee Tenghui’s visit to Japan and Prime Minister Junichiro Koizumi’s visit to Yasukuni Shrine are complicating matters between the two nations, whose relations are rapidly cooling. The trade dispute this time started April 23, when the Japanese government imposed temporary import curbs, or safeguards, on leeks, fresh “shiitake” (mushrooms) and rush used to make “tatami” (mats) from China. After repeatedly objecting to the safeguards, by way of retaliation, the Chinese government decided June 22 to impose 100 per cent tariffs on imports of Japanese automobiles, mobile phones and air conditioners. Essence of Trade Friction The trade friction can be summarized as follows: (1) While Japanese safeguards are limited to Chinese agricultural products, China’s retaliatory measures target leading Japanese industrial products. (2) The disputed items make up only a very small portion of Japan’s total imports and exports in terms of value. According to 2000 statistics, Japan imported 4 billion yen worth of leeks, 10 billion yen worth of mushrooms and 10 billion yen worth of rush from China. The total value of the three imported items, 24 billion 15 Japan&China Ch 15 11/6/07, 12:27 PM 305 306 Japan and China yen, accounts for only 0.05 per cent of Japan’s total imports of 40.938 trillion yen. Meanwhile, Japan exported 45.2 billion yen worth of automobiles, 11.1 billion yen worth of mobile phones and 5.6 billion yen worth of air conditioners to China for a total of 61.9 billion yen, accounting for 0.12 per cent of Japan’s total exports of 51.654 trillion yen. Incidentally, Japan’s automobile exports to China make up only 0.65 per cent of Japan’s total automobile exports, worth 6.93 trillion yen. (3) Although the Japan-China trade dispute is likely to be settled in a short time, there is also a potential danger that it could be prolonged. To China, where approximately 900 million of its population of 1.3 billion relies on farming, restrictions on exports of farm produce have a greater impact on their livelihoods than the economy. Moreover, safeguards could expand to eels, “wakame” (seaweed) and lumber. Such light industry products as towels, neckties and socks could also be affected. Export restrictions of such products are particularly damaging to China, which is a developing nation. China’s Retaliation At the same time, China must have carefully planned the imposition of heavy tariffs on such leading Japanese industrial products as automobiles, mobile phones and air conditioners. Although the amount of their exports to China is negligible compared with Japan’s total exports, the impact it has on Japanese industries is immeasurable. In particular, restrictions on automobiles, a symbolic industrial product of Japan, sent shock waves across Japan. The situation is particularly frightening because it is unpredictable what Japanese industrial products China would target next for the imposition of heavy duties. Reasons Behind Trade Dispute Why must the two countries develop a trade dispute? The reasons for Japan, I believe, are as follows: First, the ruling Liberal Democratic 15 Japan&China Ch 15 11/6/07, 12:27 PM 306 307 Japan and the China Market 307 Party had to secure the vote of farmers, on which it heavily relies. Second, import curbs could spread to other Chinese agricultural products and eventually to light and heavy industry products. Third, I dare say, the government is trying to divert public attention from such domestic problems as structural reform and bad debts. If that is the case, the thinking is simplistic. Japan’s Miscalculation Since China is counting on Japan’s official development assistance (ODA) and is set to join the World Trade Organization and host the Olympics, Japan probably thought optimistically that it would not resort to drastic measures. While Japan insists that it invoked safeguards in accordance with WTO rules, the price it paid was dear. For one thing, as an advocate of free trade, Japan has traditionally resisted import curbs imposed by the USA. This time, though, Japan took the lead in limiting imports and its argument is unconvincing. Moreover, the temporary measures expire on Nov. 8, just before...