JAPANESE TRADING COMPANIES: EVOLVING ROLE IN WORLD TRADE

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• Publication Date: September 1, 1983
• Content Type: REPORT

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Directorate of
Intelligence
Japanese Trading Companies:
Evolving Role
in World Trade
Secret
EA 83-10167
September 1983
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Directorate of
Intelligence
Japanese Trading Companies:
Evolving Role
in World Trade
Chief, Northeast Asia Division, OEA
queries are welcome and may be directed to the
of the Office of East Asian Analysis. Comments and
This paper was prepared by
Secret
EA 83-10167
September 1983
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Japanese Trading Companies:
Evolving Role
in World Trade[
Summary Japan's general trading companies are at the center of Japanese global
Information available economic activity. Close ties to Japan's largest industrial and financial
as of 1 September 1983 institutions, worldwide networks of offices, and strong links with Tokyo
was used in this report.
have helped to make the general trading companies a major force in
expanding, developing, and protecting Japan's trade position:
? The top nine firms, with a total foreign trade turnover of roughly
$350 billion in 1982, represent roughly 10 percent of world trade.
? These firms have also played a principal role in the rapid expansion of
Japanese overseas investment, accounting for 40 percent of the actual
outlays in the 1970s and 1980s and facilitating several billion dollars
more.
Their present position has been achieved by aggressive exploitation of
changing international conditions and dedication to improving their clients'
competitiveness in international trade arenas. In large part because of the
success the Japanese trading companies have achieved, several nations-
including South Korea and Brazil-have tried to design similar firms. C
The past few years, however, have not been good ones for Japan's trading
firms. Their share of Japanese domestic and foreign sales is declining, and,
reflecting the recent global recession, profits have fallen sharply. Some
observers-notably in the US and Japanese press-have suggested that the
trading firms have peaked. Many, for example, point out that the new
high-technology companies leading Japan's growth today already have
overseas marketing networks and as a result have little use for the trading
houses.
We disagree; the doomsayers greatly underestimate the underlying
strength of the large trading houses, primarily their ability to adjust. One
or two may have to be merged into a stronger firm. The major houses, such
as Mitsubishi and Mitsui, however, are branching out into third country
trade and foreign investment projects that should improve their balance
sheets.
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September 1983
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Most important, Tokyo believes these firms have a key role to play in
Japan's future. The Ministry of International Trade and Industry, for
instance, hopes to use the firms to help coordinate development efforts in the
Although Tokyo and the trading houses have generally worked in tandem,
we believe this link will weaken over time. As the companies expand their
interests in foreign markets, their equities will probably shift away from a
one-dimensional focus on Japan. Much of the overseas expansion is likely to
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Japanese Trading Companies:
Evolving Role
in World Trade
Introduction
Japan's general trading companies ' are among the
world's largest multinational corporations. In 1982
their combined assets reached $87 billion and net
sales of the nine largest trading companies totaled
$350 billion on trade in over 20,000 different com-
modities. These firms accounted for more than half of
all Japanese exports and imports; they also supplied
much of Japan's domestic market and are expanding
their role in third country sales (see table 1).
The Japanese Trading Company
The Japanese general trading companies in their
simplest form act as the principal marketer and
supplier for manufacturers, primarily within one
industrial group. In the Japanese domestic market,
they wholesale 20,000 different items, according to
one study. Beyond this, however, they act as advisers
to manufacturers on such issues as what and how
much to produce. To retailers particularly the
smaller outlets-they offer financing and product
Evolution of Trading Companies
The general trading companies have evolved over the
past century in concert with Japan's move from a pre-
industrial economy to the world's third-largest eco-
nomic force. The nine general trading companies
descend from the foreign trading arms of the giant
commercial and industrial concerns-the zaibatsu
(wealthy cliques) formed in the late 19th century.
Economic historians generally agree that these for-
eign trade companies were fostered to:
? Reduce the near monopoly in Japanese trade held
by foreigners in the 1870s.
? Develop overseas outlets to pay for imports of raw
materials, industrial equipment, technology, and
other goods for Japan's nascent industries.
? Allow manufacturers to concentrate on production
while delegating marketing and supply functions to
a core of experts.
By the early 20th century, a few huge holding compa-
nies-vertically integrated and often under the con-
trol of a single family such as Mitsui, Mitsubishi, and
Sumitomo-dominated Japanese foreign trade. For
example, the Mitsui trading company controlled
' In this paper, the nine largest trading companies will be referred
to as general trading companies-the Japanese term sogo shosha
means integrated or general trading company-to distinguish them
from the multitude of more specialized enterprises engaging in
foreign trade. In 1980 there were 12,128 foreign trade concerns,
according to the Ministry of Finance; the vast majority were small,
employing less than 10 persons. The general trading companies
accounted for 45 percent of all assets of enterprises in foreign trade
information.
For most of Japan's modern industrial period they
have been Japan's primary commercial representative
abroad, seeking markets for exports and sources for
critical raw materials. In doing so they have relied on
the same techniques that enhanced their position
domestically-a vast communications network, close
ties to Japanese financial institutions, and a core of
experts, either in particular products or markets.
25 percent of all exports in 1914. These holding
companies contributed to Japan's growing military
strength and militarism in the 1930s and 1940s. They
and their major affiliates were dissolved by the Allies
after 1945. Mitsubishi Shoji-a major trading
house-was split into 140 separate units. The breakup
of the huge trading companies gave the smaller but
well-established trading firms, including C. Itoh and
Company, Marubeni, and Nichimen the opportunity
to expand. Following the end of the Allied Occupation
in 1952, wide-ranging measures to spur exports, in-
cluding financing, insurance, tax credits, as well as
relaxation of the antitrust laws, allowed the old
zaibatsu trading firms-Mitsubishi in 1954 and Mit-
sui in 1959-to reunite many of their former parts. F
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Table 1
Nine General Trading Companies
Founded Headquarters
Sales, Year 1983 Offices
Ending
March 1983
Percent of All Sales
Derived From Trade
Total
Employees
(million yen) Domestic
Overseas
Associates
1980
1983
Mitsubishi 1950
Corporation
Tokyo
14,885,454
NA
NA
56
63
9,793
Mitsui and
Company
1947
Tokyo
14,147,368
50
153
51
62
9,735
C. Itoh and
Company
1949
Osaka
12,490,220
16
Marubeni
1949
Osaka
11,631,385
19
8
26
59
65
8,199
Sumitomo
Corporation
1919
Osaka
11,353,908
43
130
46
49
6,897
Nissho-Iwai
1928
Osaka
8,011,878
43
73
57
66
6,006
Toyo Menka
1920
Osaka
3,916,050
13
8
59
63
3,051
Kanematsu-
Gosho
1889
Tokyo
3,450,759
7
84
49
51
2,697
It is hard to underestimate the role these trading
houses played in Japan's postwar export drive (see
figure 1). In the late 1960s, they were the principal
agents for Japanese textile and steel producers. Their
aggressive export campaigns-particularly their will-
ingness to cut prices to improve their position in
foreign markets-helped precipitate several US-Japa-
nese trade disputes.
Role in Industrial Groups
Today, general trading companies are at the heart of
the seven major enterprise groups that dominate
Japan's economy (see table 2):
? The Mitsubishi, Mitsui, and Sumitomo groups con-
tain trading houses bearing their names.
? The Daichi Kangyo Bank group, Japan's second-
largest industrial group, is helped by C. Itoh and
Company, with Kanematsu-Gosho playing an im-
portant supporting role.
? Marubeni is the leader of the Fuyo group, while the
Sanwa Bank group is headed by the trading firm
Nissho-Iwai.
? Toyo Menka is the leader of the Tokai Bank group.
The trading companies do not have as much power as
the large banks within the groups, but banks and
trading companies operate closely in establishing new
ventures and organizing group projects (see figure 2).
If the bank and trading house within a group agree on
a project or policy, the other companies will undoubt-
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Figure 1
Net Sales, General Trading
Companies, 1965-83
Table 2
Group Association of General
Trading Companies
Industrial Group Trading Companies
Mitsubishi Mitsubishi Corporation
Daichi Kangyo Bank C. Itoh and Company a,
Kanematsu-Gosho b
Mitsui Mitsui and Company
Fuyo Marubeni
Sumitomo Sumitomo Corporation
Sanwa Bank Nissho-Iwai, Nichimen
Tokai Bank Toyo Menka c
a C. Itoh gravitated away from Sumitomo group to DKB group, but
also absorbed Ataka and Company in 1977-a Sumitomo group
member.
b Kanamatu-Gosho belonged to Kangyo Bank Group and Nissho to
Dai-Ichi Bank group before the banks merged in 1971. Major
shareholder in Kanematsu-Gosho is Tokyo Bank.
c Toyo Menka also has close connections with Mitsui Group-
separated from Mitsui and Company in 1920.
Relations between the general trading companies and
the other traders are frequently close. Although some
major industrial firms such as Toyota Motors have
successfully developed large export corporations to
handle their products, many of the specialized trading
companies-dealing in a narrow range of products-
are closely related to the general trading houses either
directly or through their group affiliation. For exam-
ple, in addition to Mitsubishi Corporation, the Mitsu-
bishi group includes such specialized trading firms as
Tokyo Sangyo and Kinsho-Mataichi for machinery,
Ryoden Trading and Kanagawa Electric for electrical
appliances, and Meiwa Trading for chemicals. The
combined sales of these six companies total about
6 percent of Mitsubishi's sales. They work closely
with the general trading company in arranging export,
third country, and domestic deals.
Forces of Change
Helped by their position in the groups, support from
Tokyo, and an extensive communications network, the
general trading companies continue to play a unique
role of supplier, marketer, financer, merchant banker,
and source of information for Japan. Nonetheless, the
companies have had to adjust to significant change, in
large part driven by the openness of the Japanese-
economy compared with the 1950s and 1960s. These
changes have included:
? The rapid overseas expansion of Japanese manufac-
turers and banks, reducing their dependence on the
trading companies.
? Soft demand in Japan for products usually supplied
by the trading houses, such as iron ore, oil, and coal.
? Slack world markets for those exports normally
handled by trading companies-steel, petrochemi-
cals, textiles.
? Alternative sources of trade financing, particularly
from foreign banks, available to Japanese compa-
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Table 3
Sales by Sector of Six Major
Trading Companies
Percent of Total Sales
Sales in
1982
1971
1976
1981
1982
(billion yen)
Domestic
57.3
47.2
41.6
38.9
5,711
Exports
16.2
17.0
17.6
18.8
2,762
Imports
22.3
28.5
32.9
33.3
4,887
Third country
4.2
7.3
7.8
9.0
1,326
Mitsui a
Domestic
53.4
52.0
42.8
42.5
5,623
Exports
22.9
19.6
20.0
19.4
2,569
Imports
20.2
20.9
23.3
24.1
3,188
Third country
3.5
7.5
13.9
14.0
1,845
C. Itoh
Domestic
58.4
52.7
46.0
43.5
5,362
Exports
15.1
19.9
20.6
18.7
2,307
Imports
20.1
20.2
22.6
23.2
2,859
Third country
6.3
7.2
10.8
14.7
1,808
Domestic
59.7
44.2
37.6
36.0
4,160
Exports
19.3
26.4
26.0
27.1
3,131
Imports
18.3
18.5
19.2
18.9
2,183
Third country
2.7
10.9
17.2
18.0
2,074
Sumitomo
Domestic 61.5
53.4
52.8
50.8
5,573
Exports 19.2
22.0
21.3
25.9
2,837
Imports 16.0.
14.5
16.6
15.3
1,677
Third country 3.3
10.1
9.3
8.0
878
Nissho-Iwai
Domestic 51.5
46.2
40.2
37.4
2,782
Exports 15.7
23.8
17.8
18.1
1,345
Imports 25.6
20.3
28.2
27.4
2,037
Third country 7.2
9.7
13.8
17.1
1,268
a Figures for the year ending 31 March, except for Mitsui, where the
year ends 30 September except in 1982.
Nowhere is the change more apparent than in the
Japanese domestic sector. Roughly 40 to 50 percent of
sales for the top six general trading companies still
come from goods sold by producers to wholesalers or
retailers within Japan. This share, however, has been
declining. Nearly 60 percent of Mitsubishi sales were
domestic in 1971; in 1982 these transactions made up
only 39 percent. For the largest firms, only Sumitomo
looked to domestic sales for more than 50 percent of
turnover in 1982 (see table 3).
Part of this decline in domestic sales as a share of the
total reflects the sharp increase in the value of foreign
trade-particularly oil-in recent years. Another,
however, is the slowdown in Japan's domestic econo-
my. In 1971-75, for example, wholesale turnover
increased at a 17-percent annual rate; since 1976 the
rate has slowed to 6 percent.
Diversification
Changes in the Japanese domestic market have helped
push the companies to enter other sectors, including
overseas investments, third country trade, and project
development activities. In addition, the companies
have shifted away from dependence on a few product
lines such as steel (see figure 3).
In the early 1950s, Mitsui derived more
than half o its sales from foodstuffs and Sumitomo
depended on metals for 62 percent of its sales. Today,
no trader relies on one product area for more than
one-third of sales.
Europe.
Third Country Trade
One direction in which the companies have moved is
to act as brokers in third country trade-moving
goods between countries other than Japan. These
firms have a clear advantage in this area with their
vast communications networks and their links to
banks that provide trade financing (see figure 4).
Reflecting these advantages, the trading houses now
sell Indonesian timber to Western Europe, Romanian
wine in Southeast Asia, and US machinery to Eastern
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 Figure 2
The Mitsubishi Group
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Oil and the Trading Companies
Trading in crude oil became one of the most impor-
tant sectors of trading company activity in the late
1970s as the traders helped bridge the gap that -
resulted from severe cuts in exports to Japan by the
major international oil companies during the Iranian
crisis. Tokyo's re-
strictions on foreign firms dealing in oil prior to
1978- limiting ownership of refining and distribu-
tion networks to Japanese-owned firms-helped con-
vince the international firms to ship their scarce
supply of oil elsewhere.
Trading companies initially relied on spot deals to
offset cutbacks by the oil companies, but they soon
concluded longer term agreements with the state oil
corporations of producing countries. Direct deals rose
to 45 percent of oil imports in 1980, compared with
21 percent in 1978. Such deals now account for over
half the crude oil handled by the nine general
trading companies
(see table 4):
The firms have been complementing downstream oil
operations-importing, refining, distributing, bunker-
ing, and stockpiling-by securing their own supplies
of crude by investing in exploration and production,
both at home and abroad. However, the trading
houses have also kept their ties to the major interna- 25X1
tional oil companies. Mitsui is loosely tied to Exxon
and Mobil and Mitsubishi to Shell and Getty. Getty
owns half of Mitsubishi Oil Company and is one of 16
independents supplying crude oil, mainly Indonesian,
to Japan. Almost 50 percent of the crude handled by 25X1
Mitsubishi Corporation came via the international
majors in 1981.
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Trading companies are active in other energy product
areas such as rapidly growing imports of liquefied
natural gas (LNG), mainly from Indonesia. Holdings
in joint liquefication/marketing consortia in Indone-
sia involve Nissho-Iwai-with a 10 percent interest-
and six other general trading companies. Mitsubishi 25X1
owns one-third of a major project in Brunei, and
Mitsui has major holdings in Abu Dhabi Gas Lique-
? The general trading companies handle the bulk of
crude supplies arranged directly between producers
and the independent Japanese refiners, which for
the most part rely on the general trading companies
for financial and organizational resources.
? They are also involved in the government-to-govern-
ment deals, where the producing state and Japanese
officials negotiate long-term contracts. Such ar-
rangements are in effect in Mexico, China, Peru,
Iraq, and Indonesia.
the value of third country transactions
by the nine leading companies reached $60 billion in
1981, or about 3.1 percent of world exports. The
trading houses posted sales gains in third country
trade of 52 percent in 1979, 33 percent in 1980, and
23 percent in 1981 despite a general slackening of
world trade. These transactions have increased steadi-
ly since the early 1970s. In 1971 third country trade
fication Company.
accounted for only 4 percent of all sales for Mitsubi-
shi Corporation; in 1982 the share was 9 percent.
Marubeni was the largest third country trader, with
18 percent of all sales from third country trade in
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Table 4
Japan: Crude Oil Imports by Supplier
Volume
Percent
Share
Volume
Percent
Share
Volume
Percent
Share
Volume
Percent
Share
Volume
Percent
Share
Major eight oil companies
3,064
65.8
2,728
56.4
1,968
44.5
1,457
40.7
1,357
33.3
Independent oil companies
168
3.6
111
2.3
123
2.8
131
3.7
166
4.1
Direct deal/government-to-
government arrangements a
963
20.7
1,531
31.7
1,980
44.9
1,669
46.7
2,294
56.4
Japanese producers overseas a
460
9.9
463
9.6
343
7.8
319
8.9
251
6.2
Total
4,655
100.0
4,833
100.0
4,414
100.0
3,576
100.0
4,068
100.0
a Trading companies play leading role in these transactions.
Source: Oil Industry Reports.
Plant Exports
Another direction the companies have tried-with less
success-has been the export of complete industrial
plants. In many of these cases, the firms put together
a package involving the machinery, spare parts, train-
ing, and financing. In 1983, plant sales accounted for
almost 24 percent of all exports handled by Japan's
leading traders. The leader was Mitsui and Company,
with sales of nearly $3 billion, according to an
industry source.
nies had expected. According to press
sources, faced with competition from other developed
countries and the long leadtime required, Japanese
trading companies are no longer making as extensive
an effort as in the past to expand sales of large plants.
Another factor has been the LDC debt problem.
Traders have been leery of extending large loans, and
the LDCs have been scaling back development proj-
ects. In 1981 C. Itoh deemphasized this effort follow-
ing heavy losses in Algeria and China. In announcing
their cutbacks, other firms have cited the economic
difficulties in Eastern Europe, especially Poland. For
all of the trading houses, new orders for plant exports
to oil-producing countries were down sharply in 1982,
as Saudi Arabia, Qatar, and Venezuela adjusted to
lower oil revenues.
Overseas Investment 2
Trading companies have played a key role in increas-
ing Japanese investments overseas. Five of the top
seven companies involved in overseas investment are
trading companies; only Kanematsu-Gosho and Ni-
chimen are not among the top 20 Japanese overseas
investors (see table 5). General trading companies
accounted for more than 40 percent of overseas
investments in the 1970s and early 1980s. In the past
these outlays have been in:
? Large-scale resource and energy-related industrial
projects.
? The relocation of Japan's basic industries such as
aluminum smelting, petrochemicals, pulp and paper,
and energy-related industries.
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Figure 3
Sales by Product Area, 1961 and 1983
Metals
Others
Foodstuffs
Chemicals
Machinery
Metals
Others
Foodstuffs
Chemicals
Fuels
Metals
Others
Foodstuffs
Chemicals
Machinery
Others
Fuels
Foodstuffs
Chemicals
Machinery
Metals
Others
Metals
Others
Textiles
Textiles
Machinery
M
l
eta
s
\
Materials and others
17
48
Textiles
17
Foodstuffs
M
hi
7
6
ac
nery
11
Textiles
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Table 5
Top 20 Japanese Firms in Overseas
Investment as of March 1982
Outstanding Balance
of Investment a
1
Mitsui and Company
922.9
2
Mitsubishi Corporation
879.5
3
Iran Chemical Development
792.0
4
C. Itoh and Company
518.5
5
Nissan Motor
441.8
6
Marubeni Corporation
439.0
7
Sumitomo Corporation
390.0
8
Sanko Steamship
318.5
9
Nippon Asahan Aluminum
312.4
10
Matsushita Electric Industry
303.6
11
Toshiba Corporation
290.8
12
Japan Leasing
283.5
13
Kawasaki Steel
266.3
14
Honda Motor
258.6
15
Toyo Menka
237.3
16
Sony
222.9
17
Nissho Iwai Corporation
221.3
18
Kawasaki Heavy Industries
217.3
19
Toray Industries
215.7
20
Fujitsu
205.6
a Calculated based on the 1982 average exchange rate of 249 yen to
the dollar. Figures are based on company reports of overseas
investments and not official data.
In the past few years the trading houses have become
more active in establishing overseas manufacturing
enterprises. For example, Mitsubishi Corporation re-
cently expanded its plastic business in the United
States by purchases of two polyvinyl chloride pipe
plants in a joint venture with its US subsidiary. The
plants will service automobile and electric product
makers and the market for agricultural irrigation
pipes. According to press reports, Mitsubishi hopes
the new venture will make up for flagging chemical
exports from Japan. With their extensive contacts
overseas, the trading houses are also assisting small
and medium-size Japanese manufacturing firms find
joint venture partners.
Hard Times
Despite these diversification efforts, the general trad-
ing companies have found the past few years difficult.
Last year was particularly harsh; revenue and profits
dropped substantially for the first time, and sales
growth was below the rate of inflation. The worldwide
recession, high interest rates in the United States, the
financial crises in developing countries, and sluggish
growth in the domestic market all contributed to this
drop. For the first time since it was established in
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Figure 4
Japan's Nissho-Iwai and Company and Its Overseas Trading Network,. 1981
^ Head office 0 Head office subsidiary
p Branch ? Branch subsidiary
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In 1977 Ataka and Company-then Japan's tenth-
largest trading company-collapsed and, with the
assistance of the Sumitomo Bank, was absorbed by
C. Itoh. Ataka-which had emerged as a general
trading company from a background as a specialized
steel trader-sought to diversify into other areas. To
the company's ultimate ruin, management-particu-
larly the home headquarters-failed to fully super-
vise the efforts.
In the early 1970s Ataka's US subsidiary agreed to act
as the agent for the Newfoundland Refining Corpora-
tion in Canada to buy crude oil from British Petroleum
in the Middle East and to deliver it to Newfoundland
for processing. In addition to letters of credit from
Japanese banks, Ataka also provided Newfoundland
Refining Corporation with a $42 million loan without
collateral, not repayable until 1985.
In addition, the letters of credit issued by the banks
had provided no guarantee that payments would
actually be made. When the flow of oil from the
Middle East was cut off, Ataka piled up massive
debts-initially covered by its US subsidiary by
drawing on its credit in US banks. C. Itoh, with the
help of the Sumitomo Bank, eventually settled the
outstanding bills.
1947, Mitsui and Company, Limited cut employee
salaries and did not pay dividends. The consolidated
net profit of Mitsubishi Corporation in the year
ending March 1983 dropped 25 percent, the second
straight year of decline
The lower ranking trading companies, Toyo Menka
Kaisha, Limited; Nichimen Company, Limited; and
Kanematsu-Gosho, Limited are in serious difficulty;
speculation in the press is that at least one will fail.
Japanese press reports also cite Kanematsu-Gosho,
Marubeni, Nichimen, and Nissho-Iwai as potential
merger partners. This would not be a new pattern for
the major trading companies. A number of the big
nine are products of such mergers-Nissho joined
with Iwai, and Kanematsu absorbed Gosho in the
mid-1960s, while C. Itoh and Company absorbed the
virtually bankrupt trading firm Ataka in 1977
In the short run, however, the firms are attempting to
deal with the problems by reducing overhead ex-
penses. C. Itoh transferred 15 percent of its adminis-
trative employees to the operational sector in 1981
and Mitsubishi has imposed an early retirement sys-
tem. Despite the need the companies perceive to
attract employees from increasingly technical back-
grounds to assist in the development of their new
sections, the number of new graduates hired from
universities has been reduced'.
Prospects
The Japanese and US media have recently focused on
the problems facing the trading firms, suggesting that
their position in Japan has declined sharply and that
this trend will continue. Although the trading houses
have increased their efforts to enter new industries
such as biotechnology and optical fibers, many ob-
servers believe these industries are not likely to be of
much help in the short run.
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We believe these reports are greatly overstated and
ignore the companies' underlying strengths. The size
and scope of the companies' activities should give
them the resources to weather short-term problems, in
part brought on by the extended global recession. A
revival in world trade should improve balance sheets,
and we believe the companies have laid the ground-
work for the future by strengthening their overseas
networks of offices and subsidiaries and attempting to 25X
improve their position in third country trade and
overseas investment.
Perhaps more importantly, the Japanese Government
believes these firms have an important future role to
play in developing industries Tokyo considers vital.
According to press reports, the Ministry of Interna- 25X
tional Trade and Industry is urging six leading gener-
al trading companies to participate in the new 150-
seat jet civilian aircraft project in cooperation with
three leading Japanese aircraft makers and Boeing of
the United States. In part, MITI hopes the trading
companies' international marketing network will
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This link between government policy and trading
company activities has always been strong. Tokyo has
tried to keep the trading companies from working at
cross-purposes with Japanese foreign economic policy
by a careful mix of controls, persuasion, and
incentives:
Tokyo made liberal use of subsidized export credits
to assist the trading firms in expanding sales in the
Middle East and in funding raw material develop-
ment projects in the United States and in Southeast
Asia in the 1970s.
To help Japan's balance of payments in the mid-
1970s, the government induced the trading compa-
nies to borrow abroad by relaxing restrictions on
capital inflows.
MITI-which played a leading role in assisting the
Japanese trading companies to develop their position
in Japan and in world trade-came under increased
pressure in 1974 from antitrust groups such as Ja-
pan's Fair Trade Commission to reduce the influence
of the trading companies in the Japanese economy.
For the most part, the Ministry of International Trade
and Industry has been able to blunt domestic criticism
of the trading companies by citing their importance in
maintaining Japan's competitive position. To placate
the critics, Tokyo has limited the close ties between
big banks and trading houses by establishing loan
ceilings.
Trading companies have sometimes found themselves
caught between Tokyo's policies and what they per-
ceive to be their own best interest.
Nonetheless, the government and trading firms in
general have held similar foreign policy goals and for
the most part manage to work in tandem.
Implications for the United States
How the trading firms evolve will have a significant
impact on the United States. Although their position
in the Japanese domestic market will probably contin-
ue to slip, the trading houses still will have the
potential to spur imports or act as a trade barrier. As
their investments in the United States increase, the
trading companies will be inclined to move more US
goods to Japan and other countries. On the negative
side, however, the trading houses are intimately con-
nected to many small Japanese firms which have
strongly resisted the lowering of trade restrictions
More importantly, as these firms continue their thrust
into more complex international transactions, their
relationship with the Japanese Government will
change and perhaps weaken. We believe the trading
firms will find it more difficult to identify as closely as
We believe the present trend toward expanding gener-
al trading company operations in the United States
will continue. The trading houses place particular
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emphasis on the United States as the most stable and
lucrative market for investment and development. The
US subsidiary of Mitsubishi Corporation has grown
from $7.8 billion in total assets in 1977 to $13.9
billion in 1983. The US subsidiary of Mitsui and
Company is already the fourth-largest exporter of US
goods.
At the same time, joint ventures linking US-based
firms in Japan with the trading houses are expanding.
In September 1982 IBM Japan, Limited and Kane-
matsu-Gosho formed a joint venture to market office
equipment in Japan. According to press reports, in
March 1983 IBM Japan and Mitsubishi Corporation
agreed to work together on a satellite communication
system for business services in Japan.
Reflecting their already large and probably growing
equities in the United States, the trading firms may
lean more toward the United States in disagreements
between Washington and Tokyo, as they did in the
recent issue of sanctions against the Soviets. On the
other hand, these companies' growing role in third
country markets could make them more difficult to
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