International Trade and East Asian Economy Recovery since 1945 - Case Study Example

International Trade and East Asian Economy Recovery Since 1945 International Trade and East Asian Economy Recovery Since 1945 International trade is the exchange of goods and services across the border nations. The East Asian economies: China, Japan, Singapore, South Korea, Hong Kong and Taiwan have undergone massive economic development since 1945 and this can be traced back to trading that occurred among the and with other nations not among the East Asian community. This paper will explore the economies of Japan and South Korea before and after international trade to understand the magnitude of international trade on their economies. In 1950, Japan’s per capita income was almost the same that of Ethiopia and Somalia and 40 percent less than India. After the World War II ended, Japan struggled to increase coal deliveries in order to reestablish its industrial base. After securing energy supplies around the 1950s the national goal shifted to reinforce export abilities (Acemoglu, & Robinson, 2012). U.S. initiate a recovery program meant to enable boosts the economy of Japan. This program provided loans to industries and encouraged people to save and invest. Huge amounts of U.S. taxpayers money were transferred to reconstruct Japanese industry. Expenditure on Japanese went down, salary for workers was reduced and more injection on raw materials into the economy was done with the purpose of promoting export domestic consumption (Chang, 2002). And the task of rebuilding Japanese industry fell to those who knew best how to do it, the same bureaucrats and politicians who ran the Japanese war economy. As a result of this, the Japanese economy began picking up slowly. The American plan "enabled Japan to start producing what they had always wanted to and this led to the establishment of Japan Inc." The Korean War period was a boom for the Japanese economy. American ships were serviced in Japanese ports, machines were repaired, support facilities were established (Choi, 2009). Workers who earned a lot of money assisted the other ordinary Japanese to improve their lives. By servicing American ships, Japanese were able to earn income which was injected into their economy and contributed to its growth more. In the 1960s and 70s Japan focused on producing consumer products and automobiles, with knowledge that they had borrowed from America, for export markets. In addition to that, they developed knowledge-based products like computers and electronics for the export, especially to Singapore and Taiwan markets (Easterly, 2001). It is important to understand that for Japan to be able to make these electronics, they had to do what china is doing currently, copying and pirating technology from nations like U.S. In the early stages of growth and development, Japanese companies copied many American and European products. Market for computer gadgets was very promising and as time progressed Japanese companies developed patents and rights to protect their technology, which had advanced. Protectionism by the United States enabled Japanese companies stop concentrating on producing consumer goods and concentrate more on making big things like cars. By 1970, Japan was the third largest industrial nation in the world after the United States and the Soviet Union. Prompted by the Income-Doubling plan of 1960, Japan became the world’s second-largest economy, strong enough to withstand the energy crisis and oil shock of the mid-1970s (Easterly, 2013). The Arab oil embargo of the 1974 and 1975 made Japan went into a severe recession making their GDP shrunk 0.5% in 1974 and 4% in 1975 with the worse drop of 13.1% occurring the January-March 1974 quarter. In addition to that, their economy was hit by an increasing inflation in 1973 due to swelling prices of the land prompted by development boom that were taking place within the nation. That very year, war broke out in the Middle East and Arab oil-producing nation cut supplies to countries that supported Israel. Prices of oil increased four times, the rate of consumption reduced drastically but the price of raw materials increased thus affecting the companies. The same oil incident hit Japan’s economy in 1980 leading to high inflation and recession in the economy. The exchange rate reaches 360 yen to the dollar in the 1970s. Even so economic growth continued at a robust rate through the 1970s and 80s, with the growth in the 1980s about 5 percent a year, about half the growth rate that China experienced in the 2000s. With the help of the oil embargo Japan captured 21 percent of the worlds automobile market by the mid-1970s (Grabowski, & Sharmistha, 2007). By the 1980s, Japan had built up such huge trade surpluses and the yen had become so strong that Japanese businessmen were buying up properties all over the world and Japanese tourists were fanning out to every corner of the globe. Many people thought Japan was poised to dominate the world economically and Japan bashing became a popular conversation topic in the United States and elsewhere. From the above, it can be seen that the economy of growth of Japan economy was heavily reliant on outside countries trade, policy and donation. Despite the fall in oil prices, Japan still picked up and became strong economically. International trade played a significant role in explaining the remarkable success in Japan, an East Asian economy, since 1945. In the section that follows, South Korea, another member of the East Asian economies, will be discussed. In 1960, South Korea was still one of the poorest countries in Asia. Its per capita income in 1962 was approximately $87. Before 1962, 80% of foreign investment in South Korea was simply foreign aid, typically from U.S. In the 1960s, South Korea stated manufacturing wigs and false teeth primarily for export. At that time South Korea was still undergoing major recovery from the Korean War. There were some textile factories but fundamentally no manufacturing, no banks, no real businessmen and no people who spoke foreign languages other than Japanese. The U.S. played an important part in South Koreas economic growth (Kyung, 2012). Between 1945 and 1971 the U.S. advanced South Korea $3.8 billion. In addition to that, the Vietnam War was also a big boost too. Industries sprung up in South Korean to supply the American military. The quick transformation of South Korea from a poverty-stricken to an economic powerhouse was mainly due to embankment of export-led industrialization strategies. They also adopted the road to development just like in Japan, Hong Kong, Singapore, Taiwan and South and began with production of garments and shoes and light assembly plants that produced toys and cheap electronics. Park Chung Hee being the right man at the right time for South Korea realized that Korea could flourish on a policy of export-driven growth with heavy investment in technological-intensive manufacturing companies such as building ships, steel manufacture, petrochemicals and electronics manufacture. Within weeks after taking office he established a government body to provide direction for the economy. Realizing that foreign investment was fundamental to growth, Park took the perilous but extremely detested step of normalizing ties with Japan, which led to an infusion of $800 million into the Korean economy (Nayyar, 2013). Though this initiative sparked protests from some people, is led to establishment of international trade that enable South Korea rise economically. Moreover, technology and expertise from Japan and money from the United States and Japan helped jump start South Koreas economic boom. In cases where companies surpassed Park’s five year strategies, Park would compensated these companies in order to motivate them. Textiles industries were the first to be set up. Labour, from girls in the country, was readily available and at a low wage rate during the period of economic expansion (Hozumi, 2003). In addition to that, South Korea introduced companies that processed wigs from artificial hair. The hair arrived in large bags and the girls organized it relative to its length and texture and then dyed, washed, and combed it. Through processing and selling of wigs, South Korean manufacturing companies were able to inject $100,000 to $28,000,000 between 1964 and 1969. A major consumer of the wigs was the United States. As time progressed, higher-tech manufacturing took hold in South Korea. In the 1980s, South Korea became the leading manufacture of sports shoes and low-priced textiles. At the moment, these products are now being manufactured in China, Thailand and Indonesia while South Korea now manufactures semiconductors and other high tech products. Textiles and clothing accounted for about a third of exports in 1980 but only a eighth in 1995. Office machines and telecommunications equipment accounted for about 10 percent of exports in 1980 but 40 percent in 1995 (Sachs, 2008). On the other hand, the Park government was plagued by corruption. Having looked at how the South Korea’s economy developed due to industrialization and trough trading with other economies, it is important to look at how different economies and nation contributed to this East Asian economies as this will reveal the extent to which international trade impacted the East Asian economies. Japanese investment played a critical role in transforming of Asia, particularly East Asia, into a manufacturing export base for the world and helping economies in East Asia grow. In the 1970s, Japan was overflowing with cash and it began offering aid, making investments and building factories in East Asia. After the so-called Plaza Accord of 1985 intensely pushed up the monetary value of the yen, many Japanese companies began moving their operations to East Asia to take advantage of the huge supply of affordable labor in East Asia. The countries of East Asia reacted by offering gorgeous investment terms. The downfall of the bubble economy in Asia only amplified the flow of money from Japan to East Asia. Between 1992 and 1995, a fifth of Japans foreign investment went into Asia. It was extremely had for Japan since it was the first country to invest in countries with strict governments such as Myanmar and China. For the first time in 1993, Japans income from trading with the rest of Asia exceeded revenue generated its trading with the United Sates. Japan was the major investor in Asia, investing more than $74.7 billion in 1994. Japanese companies changed the countries of East Asia into one great production epicenter. Japanese notions of joint government business efforts to promote national strength, terminated in the West, were incorporated and applied all the way through Asia and combined with the traditional Chinese way of doing things through networks often held together by family, hometown and regional ties. Japanese companies used cheap labor in Asian countries to produce goods for export and domestic consumption. On the other hand, the Sony Company set it base in Malaysia where it manufactured video cameras and other electronic gadgets. The diversification continued with it establishing a Toyota manufacturing plants in Vietnam and Thailand (Tran, 2001). By utilizing cheap labor in countries like Thailand and Malaysia Japan was able to create a market for its goods. At the moment, Japan is almost creating markets for their products in Asian countries. More than 90 percent of the automobiles sold in Thailand and Indonesia are made in Japan. As was with the Korean economy, Japan also profited from taking advantage of affordable workforce and by selling high-end components and machinery to developing industries. Other foreign investors discovered Asia and the money became flowing in. East Asian posted high growth figures through the 1980s and early 1990s that were attributed to high investment rates financed by high saving rates, rapidly improving levels of education, the absorption of large numbers of peasant farmers into a modern economy, hard work, and successful government initiatives. The countries in East Asia based their growth strategies on "export-driven" formulas that worked in Japan, South Korea, Taiwan, Singapore and Hong Kong. Economy in Thailand began taking off in 1970s and progressively expanded. Its GNP increased four times between 1970 and 1990 and growth averaged 7% and per capita incomes grew thrice between 1965 and 1995. In the late 1980s, the economy of Thailand had grown the level that it could be compared to that of the tigers like Taiwan and South Korea. According to statistics, Thailand had the worlds fastest-growing economy for about a decade in the late 1980 and early 1990s. The growth rate was approximately 8% between 1985 and 1995. The Thai economy was fueled by availability of cheap labor and light industry such as computer manufacturing and assembly. There was no shortage of construction jobs. Thailand became a leading exporter of rice, East Asias largest producer of cars (from Japanese-owned plants). A sizable middle class and generation of yuppies were created during the boom years in the 1980s and early 1990s. The sales of new Mercedes rose from 5,000 vehicles in 1992 to 14,082 in 1995, when Thailand became the eighth largest market for German cars and largest consumer of 12-year-old Scotch. At one time 1 million Thai tourists abroad spend more than 6 million foreign visitors in Thailand. At the end of 1996, foreign reserves exceeded $32 billion, unemployment was at 2 percent and inflation was 4.9 percent. All this was possible due to the trading activities that took place with other nations in the East Asian economies As to conclusion, the East Asian economies grew since 1945 as a result of international trade that took place among them and other nations. Even thought to some instances the trade was unfavorable, but it was due to oil prices. This however, did not have lasting impacts on economies of these nations since they recovered and moved on. International trade contributed a lot as seen in this research paper. References Acemoglu, D. & Robinson, J. A. (2012). Why Nations Fail. London: Profile Books. Chang, H. J. (2002). Kicking Away the Ladder. London: Anthem Press. Choi, J. (2009). The Asia crisis: the cures, their effectiveness and the prospects after. Boston: St. Martin’s Press. Easterly, W. (2001). The Elusive Quest for Growth. Cambridge MA: MIT Press. Easterly, W. (2013). The Tyranny of Experts. New York: Basic Books. Grabowski, R., & Sharmistha, S. (2007). 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