US Trade Deficit and Japan's Keiretsu
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Feb 10th, 2009
From Japan 1989 and on, slow down, bank rate was almost 0%.
Positive impact on Japanese economic growth of keeping wage cost low
MITI sponsored export-led growth programs for infant-industry strategy
-lifetime employment, in past times, assured of a job for life, no layoffs, workers given other jobs in slow
down, flexibility, workers worked as a team, managements was on the ground with the workers
-compensation-workers starting with firm would get a low pay for a number of years, once became a
mature worker, acceleration in their pay, good profits meant high bonuses, bad year, no bonuses
-Attitude at work, work for some days in the holidays, do a good job, finish the job
-Effort of labor was high, wage bill is low, profits are high, used to expand industry
-Big 5 countries, Japan, US, England, Germany, France, met and reevaluated the 3 major currencies in
the world, yen and deutche mark went up by 20%, US dollar fell by 20%
-Japan wanted to increase export levels in other countries, they took a short run policy and increased
their prices by only 5-10%, made short term losses in order to maintain the market penetration
General Trading Companies in Japan
-10 huge general trading companies that handled 60% of traded goods in Japan
-Keiretsu-3 giant corporations, General trading company, Principle Bank (gave money to manufacturing
without any tests), Manufacturing company
The General trading company marketed the goods in international markets and domestic. Moved in to
meet the marketing needs of manufacturing company, seek new sources of supply, the bank took
foreign exchange risk for manufacturer, assisted in foreign direct investment.
Marketing, insurance, make contracts for raw material-general trading company
US opinion-Keiretsu was collusive, anti-competitive, oppose free trade, 1 mean through which Japan
could introduce protectionism.
-US: Keiretsu allow Japanese firms to gain unfair advantage in domestic and international competition
and close off Market to foreign entrants
-Keiretsu is cause for closedness of the Japanese market, causing the US current account deficit with
-Keiretsu is a type of cartel and collusive, create entry barriers to markets, exclusionary practices
ISSUE: If the antitrust concerns about keiretsu are valid, public response lies on Japanese side, if
difficulties of market access is due to the lack of competitiveness of foreign firms, the appropriate policy
response is less clear, maybe foreign firms needs to devise entry strategies more suited to the Jap.
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-collection of leading firms from a diverse range of industrial sectors linked by interlocking shareholdings,
close relations with a common main bank and a general trading company
and market environment
-keiretsu is just how Japanese firms organized their input and ownership structures to compete
successfully in domestic and international markets
-financial keiretsu attract attention for role in corporate governance, provide stable and disciplined
environment for corporate management
-Firms in a keiretsu are not direct competitors in a market, usually have vertical relationships
-Financial keiretsu are highly diversified across sectors, distribution keiretsu have firms producing a
single product or related set of products
-firms in a keiretsu cannot form cartels or collude because they do not operate in the same market
sufficiently well to implement multimarket retaliation strategies necessary for multimarket effect
Keiretsu was an efficient form of economic organization. Unique Japanese form of business.
3 forms of Keiretsu
-Financial Keiretsu-Bank, trading, manufacturer working together(enterprise groups, Mitsubishi group)
-Vertical Keiretsu-vertical integration-suppliers and sub-suppliers(supplier networks centering on
assembly firms such as Toyota)
-distribution Keiretsu-general trading company established a domestic distribution network, different
distribution system for each productv}]}v]uvÁ}}µov[i}]v]]µ]}v
network(networks of affiliated wholesalers and retailers that manufacturers of consumer goods use to
distribute their products)
Conclusion: The US complaints were not substantiated. Way of forming business associates. No
economic fault of Japanese Keiretsu.
Reading 8.3-read on own
Americans were afraid that Japanese was converging to their standard of living, from 1/5 to 4/5, US was
scared. In 1980, Japan for the first time, had a zero balance of trade, Japanese had to import large
Between 1980-1985, Japan had significant trade surplus with the world, and a significant trade surplus
with the US. US started having a trade deficit with the world and Japan. This became known in US.
American economists and politicians were worried about Japan rising so quickly, US said they know why
that there was a trade deficit, thought Japan were being unfair traders, being protectionist. US wanted
Japan to open up the doors for freer trade. Thinks that Japan has a manipulated foreign exchange rate
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