Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Japan is one of the most important trade and investment partners for the United States. In 2020, bilateral U.S.-Japan trade in goods and services was worth $253 billion. Both exports and imports decreased versus 2019, as the Covid-19 pandemic hurt demand. U.S. goods exports to Japan were $64 billion, while services exports were $38 billion, for a total of $102 billion, down 18 percent from 2019. Top U.S. exports to Japan include civilian aircraft and parts, industrial machines, liquified propane, meat, corn, soybeans, pharmaceuticals, and medical devices. Imports of goods from Japan were$120 billion, and services imports were about $31 billion, for a total of $151 billion, down 16.4 percent from last year. Top U.S. imports from Japan are autos, auto parts, and electronics. Japan is the fourth-largest export market and trading partner for the United States, which has a trade deficit with Japan of $56 billion in goods (principally autos and related parts) and a trade surplus of $7 billion in services. (Information from USTR and the U.S. Census Bureau.)
As of 2020, Japan is the largest source of foreign direct investment (FDI) into the United States, with an FDI stock of $679 billion. Japan’s FDI position in the U.S. on a historical cost basis has grown every year for the past ten years, from $238 billion in 2009. Direct investment in the United States by Japanese companies is predominantly in manufacturing, particularly transportation equipment (e.g., autos). These investments support U.S. jobs (close to one million) and contribute to U.S. economic output and exports.
There are several reasons for American firms to participate in the Japanese market. In addition to its size and wealth, Japanese business partners expose American companies to new technology, rigorous competition, and – in some cases – the opportunity to partner with Japanese firms in third markets.
Why Do Business with Japan?
- Japan is the third largest economy in the world after the United States and China. It is the fourth largest importer of U.S. products after Canada, Mexico, and China. Japan is a key member of the international trade system with a market that respects the rule of law and provides strong protections for intellectual and real property rights.
- Japan’s consumer economy is large, broad-based, and sophisticated. Per capita income of $42,197 underpins its strength as a consumer market.
- Japan is highly dependent upon the import of natural resources. Japan has, for example, been for decades the world’s largest importer of liquefied natural gas (LNG). It has also been the world’s largest net buyer of food products. The United States is Japan’s leading supplier of agricultural imports, as well as agricultural capital equipment and related technologies.
- Japan’s rapidly aging and declining population continue to send ripple effects through its society and economy, shaping present and future demand in economic spheres as disparate as robotics and pharmaceuticals, franchising, and real estate.
- Japan’s strategic alliance and deep economic integration with the United States presents opportunities in advanced sectors such as space, defense, and security. Japan is a leading importer of U.S. aerospace and defense equipment and, increasingly, an integrated co- developer. Related growth sectors include defense procurement, advanced manufacturing, and cyber security solutions.
Japan’s population is declining as it ages rapidly. The population may decrease by as much as one third by 2060, from 127 million to 87 million. The proportion of the population older than 65 will rise from 27% today to 40% by 2060. The Japanese Government and business community seek to offset the effects of this demographic decline on economic growth and government budget resources, but Japan’s aging and declining population will shape demand and opportunities throughout the economy.
U.S.-Japan Trade Agreement, U.S.-Japan Digital Trade Agreement
In October 2019, the United States and Japan signed the U.S.-Japan Trade Agreement and the U.S.-Japan Digital Trade Agreement, both of which entered into force on January 1, 2020. The U.S.-Japan Trade agreement eliminates or reduces tariffs on approximately $7.2 billion in U.S. agricultural exports and the U.S.-Japan Digital Trade Agreement includes high-standard provisions that ensure data can be transferred across borders without restrictions, guarantee consumer privacy protections, promote adherence to common principles for addressing cyber security challenges, support effective use of encryption technologies, and boost digital trade.
Trade statistics and economic indicators
Several organizations, both government and non-government related, keep up-to-date data on Japan’s economy and trade. A few of these are listed below: