The crisis in Japan has had a major impact on its economy but a minor one elsewhere, underscoring the country’s slipping prominence in the global economy.
The earthquake, tsunami and ensuing nuclear crisis that plagued the northeastern coast of Japan have caused immeasurable human toll. Early predictions of its economic impact in Japan were also immense. World Bank estimated the loss to be upwards of $235 billion while Capital Economics cut the country’s GDP forecast to zero from one percent. But trade numbers from March show that the impact on the world economy is minor.
Last year, Japan lost its standing as the second-largest economy in the world to become third after China, marking the country’s shrinking significance in the global economy. The country remains as the fourth-largest trading partner for the U.S., but its share of U.S. total trade has fallen to 5.6 percent in March 2011 from 8.5 percent in 2004.
Japan relies on their trade surplus to drive economic growth, exporting mostly automobiles, semiconductors and other high-technology equipments. But its exports shrank by 2.2 percent for the first time in 16 months, while imports rose by 11.9 percent between February and March. Exports are expected to continue to decline in April, which prompted Japan Foreign Trade Council chairman Shoei Utsuda to predict that the country will report its first trade deficit since January 2009.
Despite the heavy blow that the disaster has dealt against Japan’s trade surplus, the country’s trade with the U.S. still grew in March. Imports from Japan rose by 12.4 percent while exports to Japan rose by 9.3 percent.
“Japan still needs what we ship to them, mostly chemicals, agriculture and other food stuff, while Japanese imports to the U.S. mostly consist of components and electronics that are not necessities, so we will see companies buying them from elsewhere to keep production going,” said Russell Price, senior economist of Ameriprise.
Supply chain disruptions caused much of the worry following the disaster, especially for automakers, but recovery has been faster than first predicted.
Toyota reported that its output was also cut by more than half, but they recently announced a new timeline for faster recovery than first expected. They will return to three quarters of normal production by June and full production by November. Soon after the disaster occurred, the company had difficulty procuring 500 parts, now they are only missing 30.
“While we’ve had disruptions, we were still producing vehicles that are in the pipeline,” said Javier Moreno, spokesperson for Toyota. “So we’ll be sending out the products as soon as we have all the parts.”
General Motors may even benefit from the supply gap left behind by its Japanese competitors. Their U.S. sales surged by 26.4 percent in April while its first quarter earnings tripled from last year.
Despite a 7.7 percent dip in April sales from March, the auto dealer industry is optimistic that the adverse effect of the Japan disaster will be made up for in the long run. The National Automobile Dealers Association (NADA) predicts a 20 percent growth this year with April already seeing a year-to-year increase of 17.7 percent.
“A small percentage will wait for the models they want, but the majority of people simply need a car and they will buy the models available,” said Albert Gallegos, international industry analyst for NADA. “It’s just demographics; there are more people in the market and there is pent up demand after two years of low sales. Whoever can meet that demand, wins.”
Japan is a large exporter of cars and computer chips to the U.S. and the largest importer of U.S. pork and third largest of beef in value, consuming mostly premium cuts. In February, U.S. pork exports to Japan have increased by 27 percent in February year-to-year while beef exports increased by 75 percent.
The U.S. livestock industry may even benefit from the crisis because the areas affected by the disaster amount to about 2 percent of the Japanese economy, but make up 12 percent of beef production and 16 percent of pork.
“Japan mostly buys chilled not frozen products and those spoil more easily, so there was more urgency to get them to the end user,” said Jon Schuele, spokesperson for the U.S. Meat Exports Federation (USMEF). “So we did see a drop in sales during the crisis, because of issues with infrastructure and transportation. People weren’t sure they could get the products to the consumers.”
Sales have rebounded since then and are resuming their growth trajectory from before the disaster. USMEF predicted in January that total meat exports to Japan would grow by 23 percent this year, which will not be revised despite the crisis.
Japan’s recovery from the disaster is happening at a faster rate than first predicted, though the country has a long way to go toward restoring its economy. A few analysts predicted that rebuilding efforts may help boost Japan’s slow growth, but the government will need to spend about $124 billion toward reconstruction, adding to its already large sovereign debt. Yet the rest of the world has little to worry about.
“The crisis here is very much a Japanese one,” said Bill Witherell, chief global economist of Cumberland Advisors.