Japan imported more than it exported in 2011 and in a dramatic turnaround recorded its first annual trade deficit since 1980. This looks like the end of an era of for one of the world’s greatest export engines, since the trade deficit is expected to continue in 2012.
Demographically low birth rates mean the people of Japan are aging rapidly and its population ranking has fallen from seventh in the world in 1990 to tenth in the world today. It is increasingly difficult for Japanese manufacturers to be competitive in light of rivals from China or South Korea whose products are often equal in quality and much lower in cost.
Further, energy costs in Japan have increased by 17% for corporate customers because electricity is being generated with expensive oil rather than the pre-tsunami nuclear power plants. Ongoing trade deficits and a weaker currency might make it a challenge to finance Japan’s debt burden that is already larger than Italy’s as a percentage of its total economic output (GDP).
Nevertheless, Japan is still a wealthy country with the third largest economy in the world and ¥250 trillion in foreign reserves. It is a formidable competitor with worldwide reach, so it cannot be discounted completely.
When I was in business school in the 1980’s, all management attention was focused on Japan as it showered the world with cars, electronics, and semi-conductors. No one would have predicted this news three decades ago, yet it encourages one to pause and remember how trade was once dominated by Egypt, Greece, Rome, Spain, and Great Britain before the United States today.
For the United States to avoid a similar decline, we must focus on higher education in the STEM fields (Science, Technology, Engineering, and Mathematics). Further, fiscal discipline to reduce the national debt will be essential. What else should we do? Gentle reader, you are welcome to enter the dialogue with your suggestions in the comments section below.
Changes in economies are important because they directly change the livelihoods of individuals and bring temptations to greed or the despair of poverty. Above all, change reminds us to look to the good God: he makes nations great, and he destroys them; he enlarges nations, and he leads them away (Job 12:23).