The Politics of Japan-China Trade and the Role of the World Trade System

Abstract

The large and rapidly growing trade relationship between Japan and China has occurred against a backdrop of political tensions. This study measures performance of the trade relationship, benchmarking it against other trade flows worldwide, and examines the impact of the politics on bilateral trade performance. To do this, a frontier gravity model is estimated using core determinants of trade. This gives a benchmark against which to measure trade performance, explained using resistances to trade. While the economic relationship is not independent from the politics, an important conclusion is that trade has not been diminished or disturbed by politics to a significant extent. China's commitment to the global trading system from the mid-1980s and its accession to the WTO 2001 has meant that tensions the political relationship with Japan from time to time have not derailed, but rather have increasingly come to be dominated, by the economic relationship.