Japan??™s Comparative Advantage In Automobile Production
Japan is the largest single country producer of automobiles in the world, with its 1993 domestic total production accounting for an estimated 24 percent of the world production (U.S. Department of Commerce,1995a). Top Japanese manufacturers for 1993 include Toyota with a 35 percent domestic market share, Nissan with 20 percent, and Honda with 10 percent. With annual sales of approximately seven million passenger cars, Japan is the worlds second largest motor vehicle market, after the U.S. (U.S. Department of Commerce, 1995a).
Automobiles are the largest and most complex element of the U.S. trade relationship with Japan. The U.S. motor vehicle trade deficit reached $39.4 billion by the end of 1995. This represented over 60 percent of Americas overall bilateral trade deficit with Japan. In 1995, the U.S. was the largest single export market for Japanese automobiles, accounting for 32 percent of annual exports (U.S. Department of Commerce, 1996).
From 1989 to 1995, Japanese automobiles accounted for an average of 27 percent of Americas total machinery and transport equipment imports from Japan; this accounted for roughly 21 percent of the total Japanese imports. Japanese imports peaked in 1994 at $24 billion, after a slow climb through the early 1990s. However, this figure dropped in 1995 to $22 billion, primarily in response to U.S. automobile manufacturers intense competition directed toward foreign activities (U.S. Department of Commerce, 1995b). Despite their efforts, Japan continues to have a commanding presence in the U.S. market.
Gamble and Thompson (1995) state: “Since World War II, Japanese companies have boosted annual production from 10,000 vehicles to 13.5 million vehicles at Japan-based plants and have worldwide capacity approaching 17 million.” Over the past 44 years, Japan has experienced annual sales gains 39 times; in contrast, U.S. manufacturers have achieved annual sales gains only 24 times (Gamble & Thompson, 1995). In 1980, a new era began–Japan had surged to the top of the automobile industry. The U.S. no longer held a comparative advantage over Japan when it came to automobile production. Four distinct factors characterize Japans newly acquired comparative advantage in automobile production: 1) The introduction of new technological advancements, 2) the introduction of a strong emphasis on exports, 3) an unyielding drive toward improvement, and 4) performance in head-to-head competition (Gamble & Thompson, 1995).