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“Seiron” column: Adopt a “Japan first” posture at the summit meeting

By Tatsuhiko Yoshizaki, Sojitz Research Institute chief economist

 

Self-effacing approach is out of the question

 

Prime Minister Shinzo Abe will travel to the U.S. this week for his first summit meeting with President Donald Trump. He is probably agonizing over what to say because Trump is unpredictable.

 

Yet, there is no need to agonize too much. If Trump stands for “America first,” Abe should go for “Japan first.” Fortunately, Trump is not shy about engaging in fierce arguments.

 

Japan would like to have a common understanding of the importance of the Japan-U.S. alliance and confirm the U.S.’s presence in Asia and the Pacific. On his part, Trump would like to make tangible economic gains, and if possible, something simple that he can brag about to his supporters in his tweets.

 

Yet, the approach of “making economic concessions in exchange for security gains” might set an undesirable precedent. If third countries perceive Japan to be “anxious,” this might diminish the value of the Japan-U.S. alliance.

 

In the first place, Trump, who retains the image of Japan in the 1980s, has misconceptions about the Japanese economy. The situation now is different from the era of Japan-U.S. trade friction. Japan is not doing anything wrong now at least. To be self-effacing from the start is out of the question.

 

Option of TPP without U.S. participation

 

The U.S. trade deficit with Japan in 2015 was $68.9 billion, which was larger than the $60.7 billion deficit with Mexico. However, this was less than the $74.8 billion deficit with Germany. Furthermore, the sum of the deficits with these three countries still paled in comparison to the overwhelming $367.2 billion deficit with China. So, which country will be the target? The answer is clear.

 

Then, is the exchange rate the problem? While the yen happens to be weak right now, the exchange rate of around 80 yen to a dollar after the Great East Japan Earthquake was devastating to domestic industries. It is simply groundless to claim that Japan has been guiding its currency lower for years.

 

The exchange rate reflects the economic fundamentals. It is illogical for the Trump administration to expect a weak dollar when it is planning to embark on fiscal spending to achieve rapid economic growth. While there have indeed been cases where politicians’ “verbal intervention” was effective, Trump should know that it won’t last for long.

 

Will free trade agreements be the issue? The Trump administration has announced the U.S.’s withdrawal from the TPP and is saying it is amenable to signing bilateral deals. Unlike complicated multinational negotiations, the bigger economy has the bigger say in bilateral talks. Its reasoning is that bilateral talks will be more advantageous for the U.S.

 

If Japan agrees to enter negotiations for a Japan-U.S. free trade agreement (FTA), it will probably face stronger demands for market liberalization than the provisions on agricultural exports and so forth in the TPP accord. Japan will not refuse to talk but it should also look into the option of a TPP minus the U.S.

 

Since the TPP is an experiment in rule-making in Asia and the Pacific, it is still worth pursuing without the U.S.’s participation. Australia, Mexico, and the other eight TPP participants will be disappointed if Japan gives up easily. Japan must also remember that the ROK, Thailand, and other countries are watching what Japan will do about the TPP.

 

Did Trump make his remarks on purpose?

 

Mega-FTAs like the TPP started, in the first place, precisely because of the limitations of bilateral deals. Japan should persevere in convincing Trump that “while a Japan-U.S. FTA is OK, returning to the TPP will be even better for U.S. interests.” I believe this will ultimately be mutually beneficial for the two countries.

 

Japan-U.S. trade frictions have a long history. There were frustrating moments for Japan and there were cases that left lasting wounds in the Japanese economy. Yet, Japan had not been entirely blameless.

 

This time, however, Trump’s criticism against Japan is mostly groundless. In a sense, his remarks might have been made on purpose to gain a better position in negotiations. If so, Japan should refute certain points properly.

 

The Trump administration is unique in many ways compared to previous administrations. In a way, the strategy of “giving priority to gains rather than ideology” is easy to deal with. Still, one needs to be very careful with this mercantilist tendency. The “Japan first” principle is what is needed in the Japan-U.S. summit meeting. (Slightly abridged)

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