Pacific Partners 2017: Japan's Economic Importance to the U.S.

Friday, April 21, 2017 - 1:30pm

This document, Pacific Partners 2017, is the third update on the ties between the U.S. and Japan, and is compiled by the U.S.-Japan Business Council. For this update, the growing exports of Japanese owned U.S. plants is but one of the highlights worth noting.

Japan is the 4th largest trading relationship for the U.S. behind the NAFTA countries and China, with U.S. companies and agricultural producers exporting more than $100 billion in goods ($63 billion in 2016) and services ($44 billion in 2015) to Japan annually. 

For many U.S. companies, including USJBC members, Japan is the most important market outside of North America. Japanese consumers often manage health risks with U.S.-branded pharmaceuticals, medical devices or insurance products. U.S. pork, beef and grain producers ship from the American heartland to Japan every day. Japanese multinationals manage huge global operations with the help of U.S.-made software. The Japanese government, meanwhile, is a big buyer of U.S. weaponry and other hardware for its national defense. Today, any given Japanese corporation seeking advice on crossborder mergers or capital markets will turn to Wall Street as often as a Japanese bank.

In short, the economic relationship with Japan today is far less contentious than it has been in the past. This is in part because so many Americans are now employed by Japanese companies. Japan’s cumulative investment of $411 billion in the U.S. has resulted in direct employment of roughly 840,000 high quality jobs, paying average compensation of more than $80,000.

Trade deficits are coming under scrutiny, and as such, it is natural to examine the U.S. deficit with Japan. Overall, the U.S. deficit is driven by the goods trade, the bulk of which is from manufactured goods. More than half the U.S. goods deficit stems from vehicles, or the auto parts Japan ships to supply its web of production facilities across the U.S.; Japanese car makers in 2016 assembled 3.9 million vehicles in the U.S., up from 300,000 in 1985. Of the Japanese branded cars sold in the U.S., roughly 75% are produced in North America, according to the Japanese government.

Yet the U.S. also accumulated large surpluses with Japan in services ($15 billion in 2015) and in agriculture ($11 billion in 2016). Meantime, the U.S. goods deficit is not growing, in part because Japanese auto makers increasingly supply U.S. production locally. Cars.com, a popular auto marketing website, placed five Japanese branded vehicles at the top of its annual American-Made Index for 2016, a measure of local content.