Question

Japan purchases oil from the Middle East. Since the price of oil rose in 1973, Japan has spent more money on oil than any other imported product. OPEC nations cannot use all of the products Japan needs to sell or trade for the oil it uses, so Japan must sell its products elsewhere. Japan and the United States are very important trading partners. However, there is an imbalance in their trade. Japan is using its trade surpluses with the United States to pay for its trade deficits with what organization?

Answer 1

The answer is OPEC as the more specialized a nation becomes the more likely it is to run a trade deficit with the nations that supply the inputs and to run trade surpluses with countries that buy the final products. This pattern holds particularly well for Japan. Japan buys coal and other raw materials from Australia and uses these resources to make high technology items. It can not sell enough of its finished products to Australians to pay for the raw materials it buys from them. So, it runs a trade deficit with Australia, which it pays for by running trade surpluses with other nations, for example, France.Japan and the United States are very important trading partners. However, there is an imbalance in their trade. This is part of the pattern mentioned above. Japan is using its trade surpluses with the United States to pay for its trade deficits with the OPEC (Organization of Petroleum Exporting Nations) nations.