U.S.-Japan Bilateral Trade Flows: Country, State, and Industry-level Analyses

Despite perennial trade imbalances, strong and sustained economic relations between the U.S. and Japan are vital for both countries in terms of economic growth, business creation, jobs, investment, and mutual security. At the local level, the regional economies in the two countries depend on open and stable world markets. However, the current U.S. administration’s unpredictable and inconsistent tariff imposition on foreign countries has created uncertainty and confusion in the global markets and has led to retaliatory actions from affected trading countries. This study examines the factors which determine the variations of U.S. state-level exports to Japan for the 2009–2024 period. It analyzes the impact on U.S.-Japan trade flows of the economic activity in both countries, exchange rate, distance, and structural breaks. The study applies panel regression technique on state-annual pooled data as well as on export trade by sectors. At the U.S. state-level and industry-level, the empirical results confirm the significance of state-level productivity, export market size (represented by Japan per capita GDP), exchange rate, and a structural break representing the Covid pandemic years as determinants of U.S. exports to Japan.