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Competthon from Japan
By Professor G. C. ALLEN *
DURING the nineteen-thirties the expansion of}Japan's international trade was viewed by many Western persons with hardly less moral disapprobation than was her military aggression. Her activity in supplying Eastern peoples with cheap goods which they were anxious to buy was regarded with almost as much indignation as her efforts to impose on some of them a form of government which they did not want. This identification of economic expansion and territorial aggrandisement has not been absent from post-war discussions of the Japanese problem. In drawing up the Peace Treaty, how- ever, the Allied Governments have refrained from imposing any economic restrictions on Japan, although some of them have had serious misgivings about the effects of the revival of Japanese competition on their own industries. In this policy the Allied Governments have been guided both by expediency and by justice. Japan could hardly be won over to peaceful co-operation with the Western Powers if those Powers chose to thwart her economic development in the interests of certain of their own industries. In the second place, Governments which have proclaimed their desire to help in the development of under-developed countries, and to raise the standard of life in Asia, could not act in such a way as to choke the chief Asiatic source of supply of manufactured goods. Thus the improvement in economic welfare in Asia and the acceptance by the Japanese of the political role which the Allies want them to play are both associated with economic recovery in Japan.
Furtherinore, the Americans have realised from their costly experience since 1945 that unless Japan can create a substantial export trade, she will have permanently a large deficit in her balance of payments, which they will be expected to cover. In present political circumstances this claim could hardly be resisted. To state these propositions is not, of course, to deny that the members of particular industries in Western countries may have good reason for their disquiet at the liberal terms of the treaty. The return of Japan to world markets for textiles and miscellaneous goods on anything like the pre-war scale would probably cause difficulties for Great Britain and other European countries, except in circumstances in which world trade as a whole was expanding very rapidly. The danger is not, however, an immediate one. Japan's recovery from the catastrophic effect of the war on her industries has, until recently, been very slow, and -her export trade has remained small. The destruction of plants during the war and the disorganisation of the economy that resulted from defeat and the uncertainties of occupation policy kept production for several years far below the pre-war quantity. In 1949 manufacturing output was only half that of 1937. Even though it increased rapidly during 1950, partly through the stimulus given by the Korean war, in that year it was still below the pre-war level. The export trade in 1950 was in volume only about 25 per cept. of the annual average of the pre-war years, although it has been growing fairly rapidly during recent months.
Lancashire, with memories of Japan's successful competition during the 'thirties, looks forward with dismay to a resumption of her textile exports on a large scale. But the Japanese cotton industry suffered heavily from the destruction of plants during the war, and the number of spindles in place.is still well -under half the number during the pre-war period. So, although exports of cotton piece-goods have been rising rapidly during the last eighteen months, the trade is still only about half that of the pre- * Professor. of Political Economy, University of London.
war years. The same failure to approach the former level 00, exports is to be seen in rayon and other leading export com-:: modifies. In the metal industries production compares more favourably than in textiles with the pre-war output, but in 1950 it was still well under that of 1937. The steel output was only about half. the output of the peak war-time years. Before the war Japan was an important competitor in the shipping industry.' The bulk of her ocean-going mercantile marine was sunk during the war, and she has not yet gone very far in rebuilding Serious competition here is unlikely for some years.
In the long run, however, the threat of Japanese competition' must be taken very seriously. Japan has to import a substantial quantity of food and nearly all her industrial raw materials. She has lost her colonies, from which she once drew most of her' overseas supplies of food, and her balance of payments problem is likely to remain intractable. So far, a large part of her import of food and raw materials has been financed by American aid or.'
during the last year, by American purchases in Japan in con-' nection with the Korean war. In the long run, however, the problem can be solved only by a large increase in exports:;) indeed, if there is to be a return to the pre-war standard of living, the volume of exports must be substantially greater than before the war in order to make possible the increase in imports required. by the much enlarged population. In .1936 Japan's populatio* was 70 millions ; it is now nearly-85 millions.
At the height of her commercial prosperity Japan's exports' consisted, first, of textiles and other finished manufactured goods," for which the chief markets were China and North-East Asia, South-East Asia and India, and, second, of raw silk, sold mainly to the United States. The market for raw silk has been largely destroyed through the competition of nylon, while the outlook.
for trade with China and North-East Asia is bleak. This means that, if Japan is to pay her way, she must depend almost exclul sively on finished manufactured exports, and also that she must: , extend her markets more widely in order to compensate for those, that have been closed to her. The long-run prospects are, then, that the area in which Japan and Great Britain compete wilt become more extensive, both in markets and in classes of goods than was the case before the war. It seems probable, for instance, that Japan will develop substantial exports of light engineering goods, including electrical apparatus, as well as of textiles and finished consumption goods. She has still a long way to go before these results can be achieved, for the rehabilita- tion of her industries is impeded by a grave shortage of capital: But this energetic people has overcome many obstacles in earlier times, and its economy is highly resilient.
The effect on British industry of the revival of the Japanese export trade will depend, of course, on the conditions of inter-, national trade as a whole. During the 'thirties one reason for, the outcry in the West against Japan's competition was that her exports were growing at a time when world trade was stagnating. If, in the future, international trade is buoyant, the world should, be able to absorb these additional supplies of manufactured goods from Japan with advantage to the whole and with little damage to the industries of other 'countries. Moreover, if Japan were assigned an important role in the policy for the economic development of Asia, then her enterprise and manufacturing capacity would have ample scope.
If, on the other hand, international trade were to cease to expand, and if the commerce of the new Asiatic States were to be permanently restricted by economic nationalism or political barriers, then Japan could hardly recover a substantial export trade save at the expense of certain established industries in Western countries. If this happened, producers in Western countries would doubtless demand from their Governments, as they did before the war, that they should be protected from the competition of cheap labour. Should these demands lead to the imposition of restrictions on Japanese goods, the difficulties of achieving a " viable economy " and an acceptable standard of life would be enormously increased. Indeed, the present order in Japan, the development of democratic forms of government and, 'peaceful co-operation with Europe and the United States, could hardly survive the introduction of such policies by Western Powers. Perhaps, therefore, such a step can be ruled out as being as irrational on political grounds as it is inconsistent with general economic welfare.
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