After Yokohama, Kobe and a few more ports were

After more thantwo hundred years of isolation from international trade, Japan re-appeared ininternational trade arena, through the almost peaceful conclusion of a tradetreaty with the United States in 18581. Similartreaties with other trading powers followed it in successive years.

As a resultof these treaties, Yokohama, Kobe and a few more ports were opened. Up until around1900, industrial development took place under an almost neutral trade regime2. This was notnecessarily desired by the Japanese government. It was not allowed to haveindependent authority over the formulation of tariffs until 1899. Until thatyear, tariff rates, which had been bound by an international treaty, were 5% orless.

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Export was also taxed to a similar extent. Quantitative restrictionsplayed no role until 1931.The growth ofocean fleets played an important role in the expansion of trade. The totaltonnage of Japanese ocean fleets was 23,000 in 1872. It jumped to 3.05 millionin 1920 and increased to 6.4 million in 1941, which was the third largest inthe world only after the UK and US. 1.

6 ForeignDirect InvestmentBefore theRestoration, a few foreign trading companies had some stakes in mining sectors1. These foreignstakes were purchased back by the new government. Foreign firms resumed directinvestment in Japan only after 1899. Most foreign investments were jointventures, and mostly in technology-intensive sectors such as electricalmachinery and automobiles, established through the initiatives of Japaneseenterprises that encountered demand from foreign enterprises for equityparticipation in exchanges of technology and equipment2.   The Series of Wars and their Impacton Industries 2.1 HeavyIndustries supported by Military ConcernsThrough battlesfought with China (1894-1895) and Russia (1904-1905), trades such asshipbuilding, steam shipping, and even railway transport got strong governmentsupport for military deliberations. These industries expanded their productionand physical scope of services.

Although especially military production sectorssuccessfully achieved a world-class practical standard3, theirmaterial and equipment base was not stable. Among others, steel manufacture hadbeen regarded as having main importance as a basis for all heavy industries andmilitary production. In 1901, the national steel mill at Yahata startedoperations with the support of the military. Japanese colonial expansion intonortheastern China (Manchuria), Korea and Taiwan4 assured thesupply of raw materials to those heavy industries5.During theFirst World War Japanese Imperial Forces showed a keen interest in automobilesand airplanes, which played impressive roles on the European battlefields.

Backed by the military, automobile and aircraft industries emerged as newindustries, yet it took another twenty years for full take-off6.WWI urged SelfSufficiency in Strategic CommoditiesUntil the firstdecade of this century, the Japanese economy was involved in internationaltrade networks to a substantial extent, but the outbreak of the First World Wargave a shock to Japan. There was a sudden supply-cut or shortage of manycommodities which were essential to support industrial production and dailylife in Japan. Both industry and the Government learned a lesson from thisexperience. In reaction tothe situation, the Government launched a series of industrial policies toassure the domestic supply of these threatened strategic commodities.

Theseincluded machine tools, medicine, dyes, fertilizers, soda and foodstuffs. TheGovernment set legal frameworks to get authorization for adoptingsector-specific direct support to industries by means of R&D subsidies,special tax exemptions and so on1. Severalnational research laboratories were came into existence to promote thedevelopment of indigenous technology resources2. Theformulation of national industrial standards was started in 1921.After Japanregained authority over tariff formulation in 1899, it raised tariffs graduallyto increase revenues and to protect domestic industry. During the post-warglobal trend towards protectionism, tariffs were raised again and again, with astronger emphasis on protection through tariff escalation.

The average tariffs(arithmetic average) were 4% (1893), 20% (1913), 11% (1924) and 30% (1938)3.Reflecting theincreasing importance of industrial policy, the role of the Ministry ofAgriculture and Commerce was expanded and a new independent ministry, theMinistry of Commerce and Industry (MCI, the direct precursor of the currentMITI) was formed in 1925. A variety of government / industry interactionmechanism such as advisory councils to the Minister4, subsidyschemes and preferential tax relief for business5 was introducedaround the same time.