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China Passes U.S. In Trade With Japan

2004 Figures Show Asian Giant's Muscle

By Paul Blustein
Washington Post Staff Writer
Thursday, January 27, 2005; Page E01

China overtook the United States as Japan's largest trading partner last year, the latest sign of Beijing's rising economic clout and the role that the booming Chinese market plays in boosting the global economy.

Exports and imports between Japan and China, including Hong Kong, reached $213 billion in 2004, accounting for 20.1 percent of Japan's total trade, according to a Japanese government report released yesterday. Trade between Japan and the United States was $197 billion, or 19 percent of total Japanese exports and imports.

A shop assistant waits for customers at a textile shop in Beijing. China is becoming a powerhouse market in global trade. (Claro Cortes Iv -- Reuters)

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The figures are a milepost in U.S.-Japan economic relations. In the decades since World War II, the United States served as the main market for Japanese manufacturers such as Toyota Motor Co., Toshiba Corp. and Sony Corp. as the nation rebuilt its industrial base. The American market remains extremely important for Japanese exporters. But China's displacement of the United States as the largest destination for Japanese goods underscores how China has helped keep the world's second-largest economy from falling back into recession.

"China just continues to surprise on the upside in terms of the magnitude of its trade and the rapidity of its growth," said Nicholas R. Lardy, an expert in the Chinese economy at the Institute for International Economics. "It has become a major engine of growth in the region, with Southeast Asian countries, Taiwan, South Korea and Japan all exporting so much more there."

The United States, with its enormous demand for foreign autos, electronic products and clothing, remains the biggest prop for the global expansion. Not only did U.S. imports total $1.3 trillion in the first 11 months of last year, that figure was nearly $600 billion higher than U.S. exports during that period. As a result, the U.S. economy was providing most of the demand for goods shipped overseas by all countries.

Indeed, many of the goods Japan exports to China -- the precise amount is impossible to quantify -- are used to make products that are eventually shipped to the United States, according to Lardy and other economists. These include machines, chemicals, fabric, electrical components and other goods used by low-wage Chinese workers to manufacture televisions, shoes, cameras and other products.

But China is increasingly emerging as the other powerhouse of global growth, particularly as Europe and Japan have lagged. Although China's exports have decimated companies and jobs around the world, the nation's appetite for goods is also expanding at great speed, with imports rising about 36 percent last year. Chinese demand for commodities such as petroleum, cement, steel and grain has helped drive prices of those goods sharply upward, bolstering economies as far away as Latin America.

Japanese Prime Minister Junichiro Koizumi acknowledged the importance of both the American and Chinese markets for sustaining growth in Japan, which has had trouble spurring demand from domestic sources. "The global economy has an extremely large impact on Japan's economy," Koizumi said in the Diet, Japan's parliament. "The firmly expanding U.S. and Chinese economies are a plus for Japan."

For the United States, the explosive growth in China's trade has generated much more mixed results and reactions because trade between the two nations is so unbalanced. The U.S. trade deficit with China far exceeds that with any other nation.

Shipments of U.S. goods to China surged in the first 11 months of last year, to $31.5 billion, up 26 percent from the same period a year earlier. If Hong Kong is included, exports totaled $45.9 billion, up 23 percent. Those exports included a variety of goods, from cotton to airplanes.

But U.S. imports from China, at $179.2 billion, were far greater and were up nearly 29 percent over the year-earlier level. Chinese competition has helped drive many U.S. manufacturers into bankruptcy or compelled them to move abroad.

The Bush administration, together with many economists, has argued that the U.S. trade relationship with China still benefits American interests for a number of reasons, including the likelihood that a prosperous China with a growing middle class will help keep Asia stable. Moreover, any step that severely weakened the Chinese economy would risk dampening growth in countries that serve as major markets for U.S. goods.

Prime among those nations is Japan, which is still America's third-largest trading partner, behind Canada and Mexico. In the first 11 months of last year, U.S. exports to Japan totaled $50 billion.

Those export figures were depressed by some special factors, notably a Japanese ban on U.S. beef imports stemming from the late-2003 discovery of mad cow disease in an American cow. For that reason, the slippage of the United States to No. 2 among Japan's trading partners in 2004 may have been somewhat artificial.

But current trends suggest China will continue to rise in importance as a trading partner for Tokyo.

"China's trade growth has been spectacular for three successive years," Lardy said, noting that China's total trade last year of about $1.15 trillion was more than double the 2001 level. During that period, global trade overall was up about 40 percent.

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