Geographical and historical relations in addition to the current development gap between Taiwan and Japan all help make the economic structures of these two nations complementary.
As a Nation less developed than Japan, Taiwan is in many aspects dependent on Japan, for example in such areas as commodity trade, capital inflow, technology transfer, etc. Japan, on the other hand, is not very dependent on Taiwan. Taiwan goods and services comprise only 2-4% of Japanese imports. This largely one sided dependency has resulted in an increasing unfavorable trade balance between Taiwan and Japan. Taiwan’s steadily expanding trade deficit with Japan has become a significant current account problem.
There are two ways to improve this unfavorable trade balance: reduce imports from Japan; promote exports to Japan. Manufactured goods, and especially heavy industrial goods, comprise the bulk of the products imported from Japan. Restricting the import of these could hamper Taiwan’s future development. Hence, this is not the best way to solve the current account problem.
The better way would be to promote exports to Japan. According to data, the share of Taiwan’s exports to Japan has decreased sequentially. In terms of commodity trade, non-manufactured goods, i.e., agricultural and ocean products, etc., still comprise the bulk of exports to Japan. It is possible to increase the export of light industrial products, for which Taiwan has a comparative advantage, to help redress the trade imbalance.
Through a constant-market share analysis, we can offer a similar conclusion. During our review period, 1962-1980, Taiwan’s exports to Japan were affected mostly by Japanese economic growth. The competitive effect was not as significant as expected.
In general, during the period under review, Taiwan’s exports were rather competitive but still failed to capture a large share of the Japanese market. The reason for this is often attributed to Japanese protectionism in the forms of non-trade barriers, etc. In our opinion, however, the real cause is the failure to employ Japanese marketing concepts, and an unwillingness to actively promote exports on the part of Taiwan’s traders.
We conclude that to redress the unfavorable trade balance, the initial step should be a sufficient analysis of the Japanese marketing. Technical progress, quality control, and other factors that enhance export competitiveness should also be emphasized.
