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Trump country wins big in Japanese investment drive

  • May 4, 2019
  • , Nikkei Asian Review , 6:57 p.m.
  • English Press

CHICAGO/TOKYO — Japanese companies have markedly ramped up U.S. investment since President Donald Trump took office, especially in states favoring Trump’s Republican Party, as Tokyo tries to cultivate the Americans before trade negotiations.

Trump’s steady drumbeat of complaints about the trade deficit with Japan seems to have prompted a response. Japanese foreign direct investment in the U.S. grew more than $50 billion in 2017 — the president’s first year in office — to $469 billion, the largest annual rise on record, U.S. Commerce Department data shows.

Katsunobu Kato, a top official in Japan’s ruling Liberal Democratic Party, visited a Toyota Motor plant in Georgetown, Kentucky, on Tuesday in an effort to highlight the automaker’s — and Japan’s — positive economic impact as the two countries negotiate a trade deal. The Kentucky factory is among Toyota’s largest, employing more than 8,000 people.

“We need to try more to get [the U.S. side] to understand how the Japanese auto industry contributes to the American economy,” Kato said.

As Washington pushes hard for Japan to let in more autos and agricultural products, investments by Japanese companies could prove a potent piece of leverage for Tokyo.

“Toyota’s Kentucky plant is one of its largest in the world,” Kato explained Monday to Gov. Matt Bevin. The governor noted that roughly 200 Japanese companies were creating more than 45,000 jobs.

Kato’s trip to Kentucky appears to have Trump in mind. The American president views the trade deficit with Japan as a problem and is asking Japanese companies to respond by increasing production and jobs in the U.S. Japan’s automakers are particularly sensitive to this request. In 2017 when Toyota announced it would build a new plant in Mexico, Trump took to Twitter to say: “NO WAY!”

Kentucky is a reliable Republican “red state” that voted for Trump in 2016 by a large margin. But the 2018 midterm election saw tough political fighting in some districts, and Trump will pay heed to the region as he seeks re-election in 2020.

Fellow Republican Bevin is close to Trump. It appears that as Kato explained the contribution of Japanese companies to the governor, he hoped that information would be relayed to the president.

Japan External Trade Organization data on major Japanese investments since January 2017 shows a large number of projects, mainly by manufacturers of such products as plastics and semiconductors, in Southern and Southwestern states, most of which went for Trump. So-called red states accounted for about 70% of Japanese greenfield investment.

Wisconsin and Pennsylvania, battleground states that traditionally lean Democratic but surprisingly voted for Trump in 2016, both saw substantial investments as well.

The trend hints at sensitivity among Japanese businesses to criticism from Trump. The president contends that the bilateral trade imbalance contributes to job losses and the hollowing out of American industry, and he is likely to take much the same line in the 2020 presidential race.

Trump pays particular attention to states that are populous enough to tip the U.S. electoral vote system and have large shares of white working-class voters, such as Texas, Florida and the former industrial hubs of the Midwestern Rust Belt. Narrow victories in a few Rust Belt states allowed him to defeat rival Hillary Clinton in 2016 despite losing the national popular vote.

Prime Minister Shinzo Abe has actively encouraged Japanese businesses to invest in America. He brought an English-language presentation mapping out seven planned U.S. projects to a summit with Trump last year, touting the job-creating ability of Japanese companies.

This came to light after Trump mentioned Japan sending “at least seven more big factories” in a White House meeting this month, in which he also said Japan would need to do more to cut its trade surplus. While Trump said the matter had come up in a conversation with Abe “the other day,” Japanese government insiders believe the figure came from last year’s presentation.

Political considerations are not the only factors attracting Japanese businesses to the South and Midwest. Relatively low labor costs also play a role.

Air-conditioner maker Daikin Industries opened a new factory in a suburb of Houston, Texas, in May 2017, and Toyota moved its North American headquarters to Plano, Texas, near Dallas, that July.

A Toyota executive said the area was competitive in talent, logistics and supply chains, adding that the automaker would not keep doing business there if productivity were low. The automaker announced in March that it would invest $13 billion in the U.S. over the five years through 2021, up from the originally planned $10 billion.

Daikin cited Texas’s high population, which made it easier to secure sufficient labor.

States won by Clinton have not been entirely neglected. Mitsui Fudosan finished construction last year on an office building in New York, for example.

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