The horizon is not so far as we can see, but as far as we can imagine

Category: Japan

Japan and South Korea Agree China Will Rule SE Asia

Well, the headline says “South Korea needles Tokyo with military drills around Japanese-claimed islets,” but when one reads the story one sees:

Days after Seoul scrapped intelligence-sharing with Japan, all branches of its military descended on a handful of disputed islets for two-day drills, raising ire in Tokyo and fueling a brewing trade conflict between the neighbors.

The basic truth is that the days of the Pacific being an American lake are coming to a close. China is the 800 pound gorilla. As Yang Jiechi said, “China is a big country and other countries are small countries, and that’s just a fact.”

So if the small countries don’t want to be ruled by China the way that Canada, Mexico, and most South and Central American countries are, they need to work out their differences and band together.

That is especially true for the two most powerful countries after China: Japan and South Korea.

If they can’t, well, welcome to vassalage as the Middle Kingdom rises.

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Japan refuses to eliminate agricultural tariffs, and spikes the TPP (Take 2)

The Trans Pacific Partnership trade agreement in in trouble, and one of the reasons is Japan has refused to eliminate agricultural tariffs.  Japan is entirely correct in this.

Japan’s agriculture is not efficient: it costs more to grow food in Japan than it does in many other nations.  If Japan removed its tariffs, its agricultural sector would either be eliminated or forced to consolidate and specialize in crops it has a comparative advantage in.  Whatever these are (perhaps silk), they wouldn’t be staple food crops.  Japan would thus lose what ability it has to feed itself and would have to buy even more food on world markets than it does today.

Regular readers will recognize this pattern from the article on why the third world is even more impoverished today than it was 40 years ago. Now Japan is by no means a third world country, and money would be loaned to it to buy said food, but Japan is not a healthy economy either.  The Japanese recently lowered the value of the Yen significantly, and  their exports didn’t increase.

Contrary to economic dogma that sort of thing happens fairly often: people simply are already buying as much of what Japan makes as they want.

Japan is not what it was 30 years ago, or even 10.  It runs an export deficit and it is barely running a current account surplus any more . Even when the economy was healthy, having to buy much of its energy was painful, having to buy its food would be even more so.

But more importantly, it would make Japan vulnerable to anyone who controlled foreign currency loans they need to buy the food, and to the major food producers.  Japan can print money, to be sure, and has, but there comes a point where you can’t, where people won’t take it.  Japan isn’t there yet, but they risk being there someday soon.  And bear in mind that as global warming bites, food will become more and more scarce. Right now we have a huge food surplus, that will not remain the case.

Countries which cannot produce what the rest of the world needs, nor produce what they need, are always in great danger from other nations which can cut them off.  They give up power over their own fate, and others will take advantage of it to force them to do as they wish, including opening up their markets to allow the commanding heights of the economy to be purchased.

Japan has been badly run for decades, and made the same mistake the US did when its bubble collapsed: they did not wipe the debts off the books, but instead extended and pretended.  That lead to the long “bright depression”, but it is now leading them into a much worse period.

They are, however, doing something right in refusing to remove their tariffs.  To be sure, they are doing so for domestic political reasons (the small rural farmers are politically powerful), but that doesn’t mean it isn’t still the correct thing to do.

Since the TPP is, overall, a terrible trade agreement (they virtually all are) let us hope the Japanese stick to their guns and that it does scupper the agreement.  It’ll be best for them, and for us.

(An earlier article on the same topic disappeared except for the title.  This is a rewrite, but with additional detail.)

(Article changed to indicate that Japan is still (barely) running a current account surplus, not a deficit.) -10/14/2014)

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What Japan’s Change In Government Means for the US

US China Japan Trade Deficit

US China Japan Trade Deficit

The new government has indicated it will move towards economic integration in the far east, and away from close economic integration with the US.  These two charts  tell you why, and what it’ll mean for the US.

Japan has spent a lot of money keeping the Yeb low against the dollar in order to export to the US.  Think Japan believes its getting its money worth, when China is eating its lunch on exports to the US?  The strategy worked for decades, but it isn’t working any more, indeed this year the Japanese had their first annual trade deficit in 28 years.  But unlike last time, this one comes when the “keep the Yuan low and export to the US” strategy has been in a multi year decline.

china-us-national-debt-holdings-by-lillith-newsJapan is going to be a lot less willing to finance US deficits and consumer spending than in the past, and economically it is going to be looking much more to other Asian nations.

In the long run this isn’t bad for the US.  In the short run, it’s going to hurt.

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