Although somewhat overshadowed because of the growth of China’s trade, Japan is the United States’ fourth largest trading partner and an important factor in the US economy.By George Lauriat, Editor-in-Chief, AJOTJapan’s trading relationship has been overshadowed by the rise of China. Over the past two decades, both Japan and the United States have each become major importers of Chinese products. Nevertheless, Japan is the fourth largest export market for US, and overall the fourth largest trading partner, posting over $205 billion in two-way trade in 2008. As a nation dependent on foreign trade, Japan’s economy nose-dived late in 2008 with the onslaught of the global recession. The contraction last year of the US and EU economies precipitated a rapid decline in Japanese exports. As a result, 2009 marked the first time since 1980 that Japan posted a trade deficit. The process was exacerbated by a strengthening of the Yen, particularly against the US dollar, which in turn lowered demand for Japanese exports to the US. Although the US has historically run a trade deficit with Japan, the impact of that deficit has changed greatly over the twenty-five years. Back in the mid-1990s, the US government’s major international trade concern revolved around Japan’s increasing exports to the US, particularly of autos and consumer electronics. In the 1990s, “Japan Inc.’s” interest in the US economy began making headlines when Japanese investments moved beyond so called “trans-plants” or auto manufacturing plants located in the US south and began including golf courses such as Pebble Beach in the portfolio. Excluding the auto plants, many of the investments, never panned out but the legacy remained. But to put the deficit in perspective, in 2008 the US goods trade deficit with Japan was $72.7 billion, representing a little over 9% of the US trade deficit. In 1994, the trade deficit with Japan represented over 43% of the total US trade deficit and 18% of the total imports. A great deal of the same concern of imports and the trade deficit is now directed at China, which is the largest merchandise trade partner of both the US and Japan. In 2008, Japan’s exports fell 16.4% to ¥71.1 trillion. The fear is that with a weak export sector the economy will flounder. The Bank of Japan is forecasting that Japan’s GDP will contract by 3% to 5% through the period to next March. According to Japanese government statistics the global economic slowdown caused an economic contraction of 4% between January and March of this year. To counter act the slowdown, the government increased its economic stimulus plan by ¥23 trillion ($255 billion). However, in April Japan’s delivered the first glimmer of an economic up tick. While exports fell by 39.1% compared with the same month last year, it was a little better result than the 45.6% fall posted in March. This resulted in an larger than expected trade surplus of ¥69 billion yen ($729 million). Analysts said that the drop in exports to the US and China was smaller than expected and speculated that the stimulus packages might be taking hold. There is dissension among analysts as to how much to read into the tea leaves of a single month or even a quarter. Fort example, Japan External Trade Organization (JETRO) is forecasting that trade with China is likely contract for the first time in eleven years. In 2008, the Japan-China trade grew by 12.5% year-on-year to $266.40 billion. NATURE OF TRADE: IMPORTS AND EXPORTS In 2008, the US imported $139.2 billion worth of goods from Japan, a 4.3% decrease ($6.2 billion) from 2007. US imports from Japan accounted for 6.6% of overall US imports in 2008. In 2008, the top five import categories were: Vehicles ($52.7 billion), Machinery ($29.4 billion), Electrical Machinery ($21.2 billion), Optic and Medical Instruments ($6.4 billion), and Organic Chemicals ($3.0 billion). Also notable were US imports of agricultural products from Japan totaling $504 million in 2008. Leading categories include: snack foods