Trade Policy, Open Regionalism and NAFTA: the Socio-Economic Context for Japanese Automobile Investments in North America‪.‬

Abstract This paper examines the investment strategies of Japanese automakers in the context of evolving U.S. and Canadian trade policy. The trade imbalance and trade disputes between the United States and Japan set the policy context. In the 1980s, the U.S. trade deficit with Japan for goods in general, and automobiles in particular, set the stage for negotiated voluntary export restraints (VER). In the 1990s, the North American Free Trade Agreement (NAFTA) signaled a continental focus in US trade policy that Japanese business did not want to be excluded from. The influence of culture on international business is recognized, and several factors are shown to push the Japanese automakers to experiment with joint ventures and also to establish wholly owned plants in North America. Within North America, differences are found between the U.S. and Canadian trade relations with Japan. By the end of the 1990s the automotive trade pattern demonstrates the increased continental focus expected under NAFTA with increased volumes and values of trade. Canada and the U.S. were the largest bilateral automotive trade partners with the U.S. having a trade surplus in automotive parts and Canada having a trade surplus in vehicles. The Japanese firms established a large production capacity in North America and remained active traders as well. Overall, trade was not restricted to NAFTA partners as the objective of open regionalism was achieved with increased Japanese, South Korean and German exports to the buoyant North American market.