This paper presents an analysis of Japan's international trade. Its purpose is to analyze the trade pattern of the country and to determine if the country is labor or capital abundant. In addition, this paper establishes the type of trade pattern Japan has.
Countries engage in international trade because it is a mutually beneficial process. At the macro level, national welfare increases. At the micro level, individual exporters earn profits, provide an additional level of employment, and supply convertible foreign exchange which is used to pay for imported goods and services.
In terms of national welfare and economic common sense, imports are the ultimate rationale for trade. By definition, a good is not likely to be imported unless it meets at least one of three criteria: (1) it is cheaper than domestically produced counterparts; (2) it is of better quality than its domestic competition; or (3) it is either unavailable or in short supply in the domestic market.
Obtaining goods from abroad at cheaper prices increases consumer's buying power, and, as a consequence, real incomes rise. This in turn means an increased standard of living in the importing country. High tariffs and other barriers to imports increase costs to consumers, lower real incomes, and reduce their freedom at the marketplace. One of the major sources of price disciplines and incentives for innovation by domestic industry is import competition. Imports are intrinsically deflationary. Furthermore, since one country's imports are another country's exports, failure to import by country A reduces the supply of foreign exchange needed by other countries to buy A's exports.
The ultimate basis for international trade is price differentiation. Each country is endowed with a different relative mixture of the factors of production. Traditionally, differences in the relative abundance or scarcity of land, labor and capital determined the domestic price str...