International Production Networks And Changing Trade Patterns In East Asia The Case Of The Electronics Industry

The purpose of this paper is to analyze how the spread of different international production networks in East Asia has affected the trade links of the region with the U.S. and Japan. We concentrate on one particular aspect, i.e. changes in the product composition of U.S. and Japanese electronics exports and imports to and from the East Asia region. We find that compared to the U.S. , Japan’s trade links with East Asia display a far greater diversity of the product groups involved. Of equal importance is a second finding: the trade balances of both countries with the region are radically different. A consistently high and growing trade deficit characterizes U.S. trade links with East Asia in the electronic industry. This is true even for computers and components, the two sectors where the U.S. has re-established itself during the last few years as an uncontested leader. This is in stark contrast to the situation in Japan, where a large and rapidly growing surplus characterizes its trade links with East Asia. Although this is now slowly changing as East Asia has become the most important source of Japanese electronics imports, there is reason to doubt whether this positive development is strong enough to reduce any time soon the asymmetric nature of Japan’s trade links with East Asia. These differences can only be partially attributed to traditional macroeconomic factors that are the focus of standard trade theory. In the paper, we show how the observed differences can be better explained by some peculiar features of the international production networks that American and Japanese firms have established in East Asia. The chain of causation appears to work both ways. Changes in the organization of international production have led to changes in the composition of bilateral trade flows. Such changes in international trade patterns, in turn, lead to further changes in the organization of international production.