Wednesday, November 10, 2010


This week high-ranking officials of the member countries of APEC (Asia-Pacific Economic Cooperation) are meeting in Yokohama to discuss a free trade agreement that would eliminate the region's trade barriers, which artificially raise or lower prices in order to make domestic goods more appealing to consumers.

Recently there was a protest held in Tokyo against the FTA, which the Japanese government seems to be favoring. While it's quite natural for farmers and the agricultural lobby to resist such change, I think this would be a positive step forward for all countries involved. According to the Japan Times article I just linked, Japan's participation in this agreement would lower Japanese farm output by about 4.1 trillion yen and cut the nation's GDP by 7.9 trillion yen. That could hurt. Unfortunately, however, these numbers are being artificially propped up by tariffs. In a free market, Japanese consumers would be buying cheaper produce from other countries, so there's a good chance that such a change would make food even cheaper for most Japanese consumers. The downside is that farmers will have to either become more competitive or switch industries, which may not be possible for those who are advanced in years or heavily invested in agriculture. Still, in the long run, the principles of economics dictate that free trade is the most efficient and produces the most value for the consumer.

Who knows, though? While this FTA looks like it would eliminate tariffs, there's also the flip side of that coin. I don't know if it would impose any restrictions on subsidies, which the Japanese government could always sink more money into to keep farmers propped up. I guess we'll see.


  1. Free trade will not reduce the Japanese GDP. Whoever is predicting that doesn't understand economics.

    To my knowledge, free trade has never been known to reduce the GDP of any country. It has frequently been *predicted* that a free trade arrangement would harm the economy of a nation in some manner, but that's never how it actually works out in practice. Ever. People who claim that it will are ignorant of basic economic principles.

    Yes, when you remove the tariffs, consumers start buying cheaper foreign goods instead of the overpriced domestic goods. But that's only one part of the picture, and a simplified view of it at that. Other industries benefit. Also, exchange rates shift to compensate as necessary (assuming you don't have your currencies artificially locked). Free trade sometimes benefits one country *more* than it benefits another, but there is always a net economic benefit flowing in both directions. In the entire history of world economics, I don't know of a single exception to this, ever.

    Yes, maybe Japan's agricultural sector will become a smaller portion of the overall Japanese economy. That implies some other industries will become a *larger* portion of the economy, and quite frankly having agriculture be a smaller portion of your economy is a sign of a mature and well-rounded economy.

    Whenever free trade is considered, in any country, at any time in history, there are always people who don't want it, making all kinds of claims about how it will harm the economy, but they're always wrong. Free trade is good for the economy.

  2. If it'll make some of the prices for fruits and vegetables drop, I'm all for it. Paying 300yen for a couple sticks of celery, or 3000yen for a watermelon is just highway robbery. It's time for Japanese farmers to start competing instead of hiding in a bubble.

  3. I am not an expert in economics, but I think that Jonadab's explanation may be overly simplistic in the context of the protests.

    I imagine that the effects of FTAs as described in Jonadab's post is more of what happens in the LONG-TERM. However, the SHORT-TERM effects could be overwhelmingly negative to many individuals in Japan.

    These individuals can affect local politics. Public officials in Japan's political system would likely lose support from voters for severely negative outcomes on the local economies.

    If my analysis is inaccurate, please post and tell me so. Or, if there is anyone who has ideas on how a transition to freer trade can be obtained without short-term repercussions, I would like to hear those too.