The Japan-China trade relationship
Over the past few years, China has increased its economic contribution to Asia. From the 1980s, the trade levels between China and Japan increased rapidly growing the overall trade turnover in Asia. This has helped Asia to share double levels of the global trade in the recent years. According to Capling and Ravenhill (2011), China has raised in economic ranking to become one of the strongest economies in the world. In spite of the past series of economic downturn, the trade between the countries has played a crucial role in enhancing successful economic recoveries. Thus the two economies have pushed for timely intervention towards the stabilization and coordination of the exchange rates in Asia. Most specifically, the trade between China and Japan has increased from $5 billion to about $65 billion (Hamashita, 2013). The increased levels of trade have been facilitated by the establishment of strong bilateral and diplomatic relations among Asian countries. However, China’s involvement in the global trade has increased the level of intraregional trade among different countries.
The Expansion of Global Value Chains
How has the trade between China and Japan led to the rise of the global value chains? The Japanese and Chinese firms have expanded the global value chains due to internationalization of industrial processes and enhanced communication. These promote production and coordination of businesses as well as international fragmentation. The inception of internet has played a curial role in promoting the trade in China and Japan. In the past, international trade was only left for expensive and highly profitable products such as spices (Bown, 2011). However, after the growth of the trade between Japan and China, Asian countries are able to access new global opportunities in the international markets. This also relates to the recent industrial revolution that led to the rise of industries and workers specialized in handling complex tasks and duties.
Both Japan and China have concentrated their efforts on certain tasks promoting the industrial productivity levels. Even though the specialized efforts are maintained within the national borders, the products are sold within Asian countries to expand the regional markets. With the continued specialization and internationalization of production processes, the Japanese and Chinese economies have been able to expand their operations into the global manufacturing spectrum (Hamashita, 2013). The specific countries including Japan and China tend to specialize on specific production to optimize the value chain aspects among different geographical locations. From an institutional perspective, the interregional trade has led to reduced tariffs and multilateral agreements that promote the growth of trade in Asian countries. Asian economy has also benefited from the regional trade agreements and union including the Association of Southeast Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation forum (APEC).
The trade between the two Asian nations has also led to the emergence of the “Factory Asia”. This identifies the growing demand for customized manufacturing from the global markets while containing adequate supply to the domestic markets. This occurred after the development of mass consumption and marketing in European countries (Taylor, 2014). During the period, the countries focused on creating marketing comparative advantages while outsourcing production from other countries. This increased the demand for foreign suppliers. Japan and China have made collaborative efforts in trapping the supply capacity in most of European countries and the United States. This has enabled them to drive large international value chains in terms of production and supply of products. The increasing supply chains of Asian countries in the United States has increased due to the presence of favorable trade environment and reduced costs of operations. As a result, the expansive distribution of trade between Asia and Japan has led to the domination of trade in Asia and in the global markets.
Growth of Vertical Specialization in Asia
Different international firms usually pursue different objectives promoting the production and business operations across the globe. Some of the firms trade in productions within the global value chains enhancing vertical specialization. Both Japanese and Chinese firms have engaged in horizontal diversification of its production processes within Asian economy (Taylor, 2014). However, most of Japanese and Chinese firms have signed investment agreements relating to the international markets. Thus, many of the multinationals in Japan and China have adopted the vertical and horizontal specialization of business operations. Their trade operations have improved the current level of horizontal diversification.
For instance, the trade led to the growth of the customized manufacturing favorable for meeting the demands of the global markets. Chinese and Japanese firms trade through mass marketing that forces mass production. This creates increased productivity of the foreign marketing at the level of international market productions. Today, 62 percent of the export-oriented products are developed by the domestic markets. For example, Japan has engaged in automobile trade with China because of the trading policies nature that links the two countries. This also provides increased flexibility in outsourcing its manufactured products and technical skills to other countries. Both countries still benefit from the ASEAN Free Trade Area (AFTA) maximizing their trade exchanges and deals. Vertical specialization grown by the two countries facilitated economic growth and development in Asia.
Development of Infrastructure in Asia
The growing trade between China and Japan has led to enhanced development of infrastructure services in Asia. For example, Asian countries have established significant innovation and development infrastructures useful for providing smooth operations of the trade systems in the economy. The availability of infrastructure services is relevant to promoting the ability of the different economies to grow their global value chains. The infrastructure services include finance, insurance, telecommunications and transportations. The trade between China and Japan has played a crucial role in promoting the development of innovations in Asian economy (Bown, 2011). This in turn assists Asian economies in developing international transport and engagements.
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The improved infrastructure services have developed the current trading environment between the exporters of importers in Asia. It has influenced the costs and timeliness of international trade operations in Asia making Asian economies more competitive. This has increased the current level of merchant ships transporting bulk products from Asian countries to other countries. Most important, the trade helped to promote containerization between the Asian countries. Containerization provides the aspects of automation, security and reduction of damaged goods to be transported to other countries. Thus, it made influential contributions to the growth of global supply chain production processes. For example, it facilitates faster transportation of intermediate goods to the manufacturers to increase the production of the final products for the customers. The two countries have adopted diversified and advanced technologies including personal, digital and virtual communication approaches. Apart from the development of technology, the trade led to the establishment of mechanized transport systems including steam ships and railways.
Apart from containerization, the trade has led to the establishment of air transport in Asian countries. Air transport offers quality and competitiveness in terms of transportation of finished products to the desired destinations. It is suitable for the transportation of time sensitive and valuable products of Asian economies. Between 1990 and 2008, it was estimated that Japan and China transported merchandise worth U.S $30 billion in revenues between them (Taylor, 2014). The high level of air transport revenues provides substantial revenues needed for the development of infrastructure and Asian economies. Another example, the development of the container port traffic has facilitated the growth of trade between China and Japan.
Notably, there has been an increase in information and communication technology investments. Today, people in Asian countries have access to adequate information promoting effective decisions making, logistics improvement, and communication between various stakeholders. The communication devices are useful for enhancing the growth and sustainability of the production aspects in different countries. The innovation and communication infrastructure have offered a big opportunity for the promotion of international integration (Capling & Ravenhill, 2011). In addition, the establishment of infrastructure and innovations has pushed for reduced costs and time in conducting trade over the borders. This has had a positive impact on the promotion the competitiveness level in the trade.
The Evolution of Tariff Policies
Moreover, the trade between Japan and China plays the role in decreasing the tariffs applicable to the imports. For instance, China has become a duty free economy trading with Asian countries. The overall reduction in the transactional costs has led to the development of infrastructures in Asia. However, low tariffs and duties have become crucial in enhancing the trade between the countries. The Chinese and Japanese have pushed for reduced tariffs that allow expansive market access. The two countries have engaged in several agreements aimed at reducing the level of tariffs in order to enhance the transparency of trade operations. In the Asian region, the tariffs imposed on the favored nations are usually low. However, the trade between Japan and China has developed the trade volumes advocating for lower tariffs in the trade between Asian economies (Wattanapruttipaisan, 2001). Also, the growth of Asian trade due to the influence of China and Japan has helped in decreasing the current levels of tariffs. The Asian trade integrated with other markets including the European Union and the United States depicting an increase from 12.9 per cent in 2002 to 18 per cent in 2010. The increase in trade was caused by the increased participation of China and Japan in the regional trading agreements (RTAs).
Overall effect of regional trade integrations has led to the reduced level of tariffs in Asian countries. Considering different sectors, the Asian economies have also sought to reduce tariffs in the industrial sectors in comparison to the agricultural sector. Today, the level of Japan’s tariffs on industrial products is very low if compared to the duties imposed on the agricultural products (Bown, 2011). The increased volumes of semi-processed products in Asian markets could also indicate the reduced levels of tariffs in Asian countries. The semi-processed products are charged low tariffs due to additional costs needed for additional production processes. Therefore, the trade between Japan and China has lowered the tariffs in Asian economies.
In summary, the paper sought to tackle the question of the role of trade between China and Japan in the development of other economies in Asia. The economies in Asia including Macau, Singapore, Myanmar, the Philippine and Hong Kong have managed to grow due to the increased volumes of trade between China and Japan. Through the enhanced international integration, the trade played a crucial role in enhancing flexibility of the supply of manufactured products and skilled employees to other countries. The flexibility has been achieved through the agreements of the ASEAN Free Trade Area (AFTA) that supports increased trade between Asian economies and different countries of the world. Most important, the trade has promoted vertical specialization that allows Asian economies to specialize in producing goods demanded in the global markets. Asian economies have been internationally recognized for their ability to produce semi-processed products demanded by multinationals in other countries. In addition, the current level of infrastructure services in Asian economies has improved. The infrastructure services include finance, insurance, telecommunications and transportations. The increased level of trade has pushed for the introduction of innovation, telecommunication and other aspects promoting the growth of Asian economies. Lastly, the trade has led to a rapid decrease in the tariffs in Asian economies enhancing free access to the markets.