October 19, 2011, (Wednesday)
National Graduate Institute for Policy Studies
(GRIPS) Soukairou Hall
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The WTO and IDE-JETRO have conducted joint research on this topic for a number of years. Using an international input-output table that it created, IDE-JETRO analyzed the impact that geographical fragmentation of the production process in East Asia has on international trade. The following report is a summary of the findings. Please refer any questions regarding the details of the analysis to the reporter.

As we look back on the past twenty years (1985-2005), we can see that East Asian nations and the United States have gradually deepened their economic interdependence. Although the interdependence between individual countries was weak in 1985, it had increased by 1995, centering on Japan, and by 2005 the focus had shifted to China with an increasingly strong linkage.

Next, we will survey the development of the intermediate goods supply network in East Asia. In 1985, a structure was evident in which, primarily, Japan was dependent on the import of raw materials from resource-rich countries Malaysia and Indonesia, but there was little activity in intermediate goods trade within the region. By 1990, the overseas expansion of Japanese companies resulted in an increase of exportation of intermediate goods from Japan to South Korea, Taiwan, and Thailand. This invigorated trade within the region, and greatly expanded the network. Then, in 1995, the U.S. entered the network, and intermediate goods from Japan began to be exported to the U.S. after undergoing production processes in Malaysia and Singapore. In 2000, China and the Philippines entered the network, and by 2005, most of the high-level intermediate goods produced in East Asia were being exported to China, worked into the final product, then exported to the U.S. and European markets, thereby creating a so-called “tri-polar trade” structure.

When looking at trade between the U.S. and China, the substantial trade deficit that the U.S. has with China is often viewed as problematic. To be sure, conventional trade statistics indicate such a trend. However, as has been mentioned, China imports large quantities of technologically sophisticated intermediate goods from other countries, processes them into final products, then exports them. In other words, the Chinese contribution (added value) to the exported product is relatively low, and if the monetary amount of trade is calculated on value-added base, it is possible that the monetary amount of China’s exports will shrink significantly. We at the Institute of Developing Economies have created an international input-output table for use as a powerful tool for calculation of this trade in value-added. When this is used to calculate the U.S. trade deficit with China, the deficit decreases by 30% or more compared to the conventional figures.