No world leader has invested more in the reality-television-star-turned-president than Japan’s prime minister. From Abe’s sprint to Trump Tower 10 days after The Donald’s election win in November 2016 to standing by this White House’s trolling of North Korea, no one has been more tolerant or sycophantic.
Imagine the sense of betrayal, then, as Trump lumps Japan with arch-rival China in a report submitted to Congress this week. Granted, Japan’s non-tariff barriers to auto imports are worthy of attention – but this move is just the latest example of Trump conflating China’s predatory practices with Japan’s far more benign threat. Why not just thank Toyota, Honda and Nissan for employing millions of Americans in Tennessee, Alabama and elsewhere and thank Abe for his loyalty.
Still there’s a silver lining here: Trump’s trade threats may prod Abe to act, once and for all, to raise Japan’s game.
More than five years on, Abenomics has put few reform wins on the scoreboard. Other than some modest – and obvious – tweaks to corporate governance, and massive monetary easing, Abe’s reflation scheme has been 90% talk, 10% action. Now that Tokyo can’t trust Washington, Abe may have no choice but to get serious about loosening labor markets, increasing innovation, supporting startups, empowering women and raising productivity.
One of Trump’s first acts was reneging on the Trans-Pacific Partnership. Abe had spent considerable political capital to sell vested interests on the need to lower trade defenses, only to see Trump back out. Trump scrapping the Paris climate accord sent its own shockwaves across Nagatacho, Tokyo’s answer to Capitol Hill. So did US Treasury Secretary Steven Mnuchin last month declaring dead the 23-year-old strong dollar policy.
While Trump’s recent 30% tariffs on imported solar panels and washing machines were aimed at China and South Korea, Japan’s export machine could be collateral damage. At the same time, Trump is after Abe to negotiate a bilateral trade deal, one that would demand huge concessions and use Washington’s military defense of Japan as a bargaining chip. Wisely, Abe is slow-walking any such discussion.
But as the US goes the zero-sum trade route and ties with China remain frosty, it’s high time Abe rolled up his sleeves. Japan’s second-longest postwar expansion is largely an external phenomenon. The yen’s initial 30% plunge dovetailed with accelerating growth in the US, China, Southeast Asia and even Europe. Now, the yen is rallying – up 5% so far this year – and removing Japan Inc.’s exchange-rate advantage.
Until now, Abe’s attention has largely focused on the national security portfolio. That includes his long-time goal of revising the pacifist constitution to increase the size of Japan’s military footprint. But nothing would project strength like raising Japan’s growth rate andrestoring its economic leadership role.
That goes for Trump, too. Nothing impresses the US leader more than success. Greater economic success – less deflation, higher wages – would give Tokyo greater negotiating power with Washington. It also would afford Tokyo greater firepower to keep pace with China’s financial charm offensive via its Belt and Road and Asian Infrastructure Investment Bank initiatives.
A key paradox of the Abe era is that such a nationalist would prostrate his government so fully before the Trump White House. Given the bad geopolitical neighborhood in which Japan finds itself, one can argue the merits of such a position.
Considering how little Abe is getting out of his Trump bromance, though, a new tack is in order. Raising Japan’s competitive game could be just the thing to make Japan great again and increase its global clout.