Japan posted its trade deficit Wednesday and the numbers are bleak. Following the March 11 quake and tsunami that caused a disaster at the Fukushima Dai-ichi nuclear power plant, large Japanese manufactures like Sony and Toyota have suspended production. Japanese exports in April fell 12.5 percent from a year earlier. Exports declined to 5.16 trillion yen ($63 billion) in April, while imports rose 8.9 percent to 5.62 trillion yen ($69 billion).
Some optimistic politicians say the reconstruction in the tsunami-ravaged Tohoku region will be good for the economy–providing jobs and moving money. But the truth is the government has tried and failed to keep the economy alive through massive public works projects for 20 years, and continuing that course won’t save the Japanese economy.
Japan’s economic policies, which are highly protective and highly regulated, were flawed from the start. These flaws weren’t apparent as long as the United States propped up the economy with preferential treatment while tolerating the country’s protective policies. After the fall of the Soviet Union, when the U.S. no longer had such a strong need for an East Asian capitalist ally, the U.S. discontinued this arrangement. As if on cue, the economy went into recession in 1990, and has never recovered. The U.S. advised Japan to open up its economy, which would encourage more competition and foreign investment, but Japan, not comfortable with the idea of foreigners in its economy and being intensely loyal to its native corporations, instead attempted to keep the economy afloat with massive pork-barrel spending projects, spending itself into a hole, rather than let the market sort itself out. To make an analogy, this is like having your arm chopped off and trying to patch it up with band-aids. Rather than getting a prosthetic, the Japanese insist on sticking on more band-aids. At this point gangrene is setting in, and there is no saving the body now.
The March 11 disaster was another hit to Japan’s already battered economy. Losing its economic edge and in desperate need to take care of its aging population, the Japanese are facing the largest crisis in their history.
