Academic journal article Journal of International Business Research

Business Inventories and Trade: The Case of Japanese and German Trade Influence on America

Academic journal article Journal of International Business Research

Business Inventories and Trade: The Case of Japanese and German Trade Influence on America

Article excerpt

ABSTRACT

The American economy has experienced many problems from the stock market 'DOT.COM crash' of 2000-01, to high failure rates among financial institutions and a runaway national debt with growth reducing interest rates that are related, either directly or indirectly, to the negative imbalance in our national payments. The imbalance in the American payments situation has always been primarily the result of a nagging imbalance in trade, exports minus imports of goods. Since the other contributing factors, with the possible exception of tourism and direct business investment, will almost always be negative a positive trade balance is required in order to realize a positive payments balance.

The trend of net export data has become more negative since 1956. Changes in business inventories and final sales data, however, do not indicate any strong general trends over time. Average percent change in Japanese and German exchange rates lagged one year indicate substantial stability until 1973.

Information to help support the validity of these results was obtained using econometric testing. Simple linear regressions of the independent variables against each other were computed. The F, t, and R squared statistics fail to show any substantial relationships between each pair of independent variables, thereby supporting the likelihood that multicollinearity is not a problem in this model.

One critically important factor is the likely possibility that Japan and Germany will respond to the declining dollar with new trade and economic policies under pressure from American business partners and the U.S. Government. The Japanese will be reluctant to make major tariff concessions because of domestic political considerations. For example, the average Japanese family spends 50% of its annual budget on food, compared to 15% for the average American family, because of close political ties between the ruling party and domestic farmers. Outrageous tariffs on food commodities keep prices high by virtually destroying all foreign competition. The Japanese government will have to weigh the loss of domestic supporters against the growing trade problems with America and few governments favor foreign interests over domestic concerns. Only when

America puts pressure on Japanese businesses that sell in American Markets, in the form of tariffs or import quotas, to make concession will the picture change significantly.

Unfilled orders is a key variable that should most likely be incorporated into a model, which includes changes in business inventories as an endogeneous variable because of the impact of, unfilled orders upon inventories and foreign sales.

Net exports should remain an exogeneous variable in most models attempting to evaluate the impact of the trade deficit. Other factors such as high levels of personal savings, and greater reliance upon other nations in trade are examples of complicating factors that could influence U.S. net exports. Such complications could make net exports an exceedingly difficult variable to estimate. Foreign exchange rates remain the best possible independent variables for estimating net exports despite complications in U.S. data related to the demand for U.S. currency.

One variable, which could possibly enhance the trade deficit model, are the levels of U.S. and foreign interest rates. While decreasing U.S. interest rates stimulate the economy, high interest rates provide incentive to foreign investors. A U.S. response to rising foreign interest rates has been to permit the value of the dollar to decline. A gradual shrinkage of the trade deficit is likely to keep an upward pressure on interest rates.

INTRODUCTION

The American economy has experienced many recent problems from the stock market 'crash' of October 1987, to high failure rates among financial institutions and a runaway national debt with growth reducing interest rates that are related, either directly or indirectly, to the negative imbalance in our national payments. …

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