U.S.-Japan Trade and the New Japanese Government


In recent Japanese elections a new majority party, the Democratic Party of Japan (DJP), came to power in the lower house of Parliament and now controls the government with two smaller parties, including the Social Democrats who oppose more agricultural imports in general and beef specifically. During the campaign the DJP was critical of political and trade relations with the U.S. and talked about a more independent course. Given that the previous ruling Liberal Democrat Party (LDP) ran the government for over 50 years and had close ties to the U.S., it was not a surprise that the challengers ran as outsiders. The new government could pursue a more independent course and have freer trade with the U.S.

Early in the campaign the DJP supported a free trade agreement with the U.S., but that was watered down as the party sought wider acceptance in rural areas that traditionally supported the LDP. Some DJP members from rural areas are even more wary of trade as they have had to out protect their LDP counterparts in the recent elections. The new Minister of Agriculture is a former Socialist member in Parliament, Hirotaka Akamatsu. According to a Reuters report some Social Democrats support ending the minimum rice imports under the WTO agreement.

Japan was the third largest U.S. agricultural export market in 2008 at $13.2 billion, behind NAFTA partners Canada and Mexico. Bulk products were the majority of exports, 56.1 percent, with coarse grains, mostly corn, at $4.1 billion. Wheat was second in bulk commodities at $1.6 billion and soybeans were $1.4 billion. Feeds and fodders were the largest intermediate product at $625 million. Consumer-oriented products accounted for $4.5 billion, 33.8 percent of exports, with red meat at $2.0 billion and fruits, vegetables and tree nuts at $1.3 billion. U.S. agricultural imports from Japan were a modest $505 million, with snack foods the largest at $53 million followed by beer at $42 million and fruits and vegetables at $41 million.

The DJP coalition’s major problem is that they have pledged more government spending for social and business programs while at the same time reducing the government’s debt which is now 170 percent of GDP, the highest among developed countries. Increased revenue through strong economic growth is needed, but that is not likely under economic policies that have led to slow economic growth for the past twenty years. The new Finance Minister, Hirohisa Fujii, is already talking about increasing “stimulus” spending if the recovery in Japan starts to falter.

The only way for the new Japanese government to achieve strong economic growth is to make economic reforms, including in agriculture, which the previous LDP governments resisted for decades. Those changes would include eliminating import controls on agricultural products and streamlining the country’s distribution system. That would lower food costs for Japanese consumers and provide for an increase in the standard of living A 2004 study from the Economic Research Service of USDA estimated that U.S. wheat farmers received an average of $2.99 per bushel of wheat in 2000-2002 while Japanese farmers received, including government payments, an average of $33.75 per bushel for wheat that Japanese millers considered inferior to U.S. wheat. Almost 90 percent of the wheat used in Japan is imported, and all imports are done by the Ministry of Food and Fisheries. The ERS report estimated that the total cost of imported wheat delivered to millers was about $5.96 per bushel, but the selling price to the millers was $10.23 per bushel. The spread between the two prices was used to fund various subsidy programs for Japanese wheat producers. Taxpayers covered additional payments. Wheat flour in Tokyo for those years costs $0.70-0.80 per pound compared to $0.30 in the U.S.

ERS did a similar study in 2003 for pork in Japan. Tariffs are relatively low at 4.3 percent for pork meat, 8.5 percent for offal and 0-21 percent for pork preparations. The big impediment to trade is a “gate price” for pork, a price that protects domestic producers; all import prices are increased to that gate price level if the import price plus the tariff is lower than the gate price. Domestic pork cuts at retail in Japan were priced 2-3 times higher than U.S. retail prices for similar cuts.

While the DJP is beholden to farmer interests, they may have an opportunity for change given the age of farmers. According to information on the ERS website, in 2008 in Japan there were 1.8 million commercial farms; farms with more than three-fourths of acre or sales of over $4,836 per year. Over 8 million people lived on these farms and 2.2 million are engaged in farming more than in other economic activities. More than one-third of these 2.2 million are over the age of 70 and two-thirds are over the age of 60. About 350,000 farmers were under the age of 60 and considered “core farmers.” Consolidation is already occurring as farmers rent out land to others or contract for specific activities. New policies could be designed to protect core farmers in ways other than the current high priced food system.

Japan has a per capita GDP similar to the U.S. and a high savings rate, but with only 70-80 percent of the living standard of the U.S. because of higher living costs. U.S.-Japan trade is important. The U.S. is Japan’s largest export partner at 17.8 percent followed by China at 16 percent; its largest import partner is China at 18.8 percent followed by the U.S. at 10.4 percent. It is the third largest economy in the world, after the U.S. and China, with world class manufacturing capabilities, but an aging population. It has a population decline of 0.2 percent per year. The median age is 44.2 years and 22.2 percent of the population is over 65 years of age. (For comparison, the numbers for the U.S. are +1.0 percent, 36.7 and 12.8 percent.)

Regardless of the promises of the DJP during the political campaign, economic reforms will be needed for it to reinvigorate the economy and continue to be the majority political party. A free trade agreement with the U.S. would be a natural part of the change process. Domestic agricultural policy changes and increased imports from the U.S. are fundamental parts of those wider economic policy reforms. The negotiations would be long and difficult with an outcome that can barely be imagined at this point. The Japanese economy could have closer trade relations with the U.S. and be financially stronger than now.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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