BPEA | 1987 No. 2

Imports in Japan: Closed Markets or Minds?

Discussants: Paul R. Krugman
Paul R. Krugman Princeton University

1987, No. 2

COMPARED WITH other industrial countries, Japan imports an unusually small share of its domestic use of manufactured goods. In 1980, for example, imports accounted for just 5.8 percent of Japanese expenditures on manufactured products, compared with 9.3 percent of U.S. expenditures. That same year, non-EC imports accounted for 13.9 percent of spending by the European Community. Why Japan imports so little is a source of great controversy. Popular explanations stress the role of both official and unofficial import barriers. The Japanese government allegedly takes advantage of the openness of foreign markets while reserving local markets for domestic firms. It once implemented this mercantilist policy through formal protectionist measures such as tariffs and quotas. Today it uses administrative guidance, discriminatory standards and regulations, selective government procurement, the official organization of domestic firms into cartels, and weak enforcement of antitrust laws. Japanese imports are also discouraged by unofficial practices, such as the strong relationships (“invisible handshakes”) between local suppliers and buyers, “just-in-time” inventory practices that give nearby suppliers an edge, and an unusually complex distribution system that creates substantial entry barriers for newcomers, whether Japanese or foreign.