America's Economic Stimulus Measures and Their Impact on Japan's National and Regional Exports
March 23, 2009
In 2008, Japan's exports to the United States fell by 15.9% on the previous year owing to the deterioration of the US economy, but the US is still Japan's most important export destination (followed by China, Japan's exports to which are valued at ¥12.9 trillion). In January, exports to the United States saw a further massive fall of 52.9% year-on-year but, on February 17, the US government approved an Economic Stimulus Act providing measures worth a total of $787 billion.
Estimates of how far these large-scale economic measures will stimulate Japan's exports, at national or regional level, suggest that the increase in direct policy-related demand provided under the American Recovery and Reinvestment Act in itself will have a limited impact on Japanese exports. This is because many items of US federal government spending, such as support for state and municipal governments or measures to help the unemployed, do not readily translate into import growth (or export growth from Japan's viewpoint), and because the chances that reductions in personal taxation will lead to the purchase of more automobiles are thought to be slim.
The sharp fall in consumer spending in the United States has caused Japan's exports to that country to fall by ¥1,530.6 billion. A breakdown reveals that by far the most important factor has been a fall of ¥1,249.2 billion in exports of cars and automotive parts. This is followed by a fall of ¥88.2 billion in information and telecommunications equipment, ¥61.6 billion in electrical machinery, and ¥50.8 billion in electronic devices and components.
Meanwhile, increased government spending under the American Recovery and Reinvestment Act is expected to generate export growth worth ¥281.2 billion. This includes ¥63.7 billion in cars and automotive parts, ¥54.6 billion in general machinery and ¥34.3 billion in electronic devices and components. Personal tax cuts in the United States are expected to generate export growth of the order of ¥130.0 billion. This includes ¥48.8 billion in information and telecommunications equipment, ¥33.3 billion in electrical machinery, and ¥17.4 billion in electronic devices and components. The export growth generated by increased government spending and personal tax cuts is expected to be worth a total of ¥411.2 billion, and it is likely to be difficult to make up the fall of ¥1,530.6 billion due to the decline in consumer spending.
Differences in the structure of trade and industry mean that the impact will vary between regions. The total positive impact of increased government spending and personal tax cuts on the Kansai region's exports to the United States should be ¥85.6 billion. To the extent that this figure is less than the impact of the fall in consumer spending (¥97.3 billion), the Kansai region is in the same position as other regions in Japan but, because it has fewer automobile industry production bases than the Chubu and Kanto regions, the impact of the fall in consumer spending is lower than in those regions and is almost canceled out.
For the Chubu region, the positive impact of spending growth and personal tax cuts will be greater than for the Kansai region, at around ¥117.6 billion but, because the Chubu region has largest concentration of automobile industry bases, it has suffered by far the greatest impact from the fall in consumer spending (–¥806 billion) and the positive impact of the stimulus package will be well below this figure. For the Kanto region, the positive impact of spending growth and personal tax cuts will be the greatest, at a total of ¥162.2 billion, but as the Kanto has a concentration of automobile industry bases, albeit smaller than that found in the Chubu region, the impact of the slump in consumer spending will be severe (–¥417.5 billion), the final balance will be negative.
The impact of the increase in direct policy-related demand under the American Recovery and Reinvestment Act will be limited but, if the knock-on effect of the financial stability measures and economic stimulus measures lead to the resolution of the credit crunch and an improvement in consumer sentiment, the portion of the slump in demand for automobiles due to extraordinary factors, which are responsible for a greater decline than the deterioration in employment and income conditions, will be resolved. As it will be of greater benefit than the increase in direct policy-related demand, it is the trend in this area, if anything, that holds the key to the recovery of exports to the United States.
For more information on the content of this report, please contact Kiyoshi Yoshimoto , the Japan Research Institute, Limited.