Up (Free to Choose, 1979, Harcourt Brace Jovanovich,

Up until around
1900, industrial development took place under an almost neutral trade regime1. This was not
necessarily desired by the Japanese government. It was not allowed to have
independent authority over the formulation of tariffs until 1899. Until that
year, tariff rates, which had been bound by an international treaty, were 5% or
less. Export was also taxed to a similar extent. Quantitative restrictions
played no role until 1931.

The growth of
ocean fleets played an important role in the expansion of trade. The total
tonnage of Japanese ocean fleets was 23,000 in 1872. It jumped to 3.05 million
in 1920 and increased to 6.4 million in 1941, which was the third largest in
the world only after the UK and US.

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1.6 Foreign
Direct Investment

Before the
Restoration, a few foreign trading companies had some stakes in mining sectors2. These foreign
stakes were purchased back by the new government. Foreign firms resumed direct
investment in Japan only after 1899. Most foreign investments were joint
ventures, and mostly in technology-intensive sectors such as electrical
machinery and automobiles, established through the initiatives of Japanese
enterprises that encountered demand from foreign enterprises for equity
participation in exchanges of technology and equipment3.


 The Series of Wars
and their Impact on Industries

1 Milton Freedman regards the
free trade regime of Japan in the initial three decades of independence as one
of the major success factors for industrialization, compared with the
stagnation of industrial development in India after independence (Free to
Choose, 1979, Harcourt Brace Jovanovich, Chapter 2).

2 Takashima, one of the largest
coal mines then in Japan, was owned by British merchant Thomas Blake Glover,
and the first steam railways extended from Tokyo to Yokohama was an investment
by Americans.

3 Toshiba-General Electric for
electric valves, Furukawa-Siemens for copper cables, were two examples of these
joint ventures. These international ties were maintained until recent times.