Talking Trade blog
When Abe goes to Washington
Published 07 February 2017
On Friday, February 10, Japanese Prime Minister Shinzo Abe will hold his second meeting with US President Donald Trump. Abe should strongly resist the temptation to announce the start of bilateral trade negotiations.
If pressed, the two parties could welcome the opportunity to explore stronger two-way economic ties and leave it at that.
Abe likely has three objectives heading into Washington.
First, he wants to ensure that the security relationship between the United States and Japan remains intact. The visit of the new US Secretary of Defense, James Mattis last week to Tokyo should have gone some distance towards calming jangled nerves. Mattis reaffirmed US national interests will continue and the US will support traditional American security objectives in Asia.
Second, Abe seems to continue to hope that Trump will change his mind on participating in the Trans-Pacific Partnership (TPP) trade agreement. It’s unclear whether this hope stems from something that was said during the previous meeting between the two men just after Trump’s election victory, or whether it relates to Abe’s own vested interests in seeing the TPP get over the finish line with all 12 parties.
Abe, after all, has staked considerable personal capital into the TPP project. He took on vested interests inside Japan that most astute observers had argued would never be tackled. He guided the agreement through the legislative branch and saw Japan become the first TPP country to formally ratify the deal.
To fully appreciate the magnitude of this achievement, it helps to remember that at many, many points across the negotiations, no one expected Japan to complete the agreement. There were two prime ministers before Abe who both pledged that Japan would enter the talks and then proved unable to pull the trigger and start negotiations.
When Abe came into power and Japan finally got into the talks in the summer of 2013, everyone assumed Abe, likewise, would not survive in government. Or his team would not be able to finish the negotiations because the compromises necessary to get a deal done would prove too costly.
The entry into force provisions in the TPP were written the way they were in large part to ensure that Japan would not drop out. (Ironic, no?)
Abe’s motivations for pushing the TPP appear to have always been an intertwined combination of economic and strategic. He wanted to use this high ambition megaregional trade agreement as a mechanism for pushing through domestic reforms as part of his “third arrow” of Abenonomics. And he clearly saw the TPP as a helpful additional economic leg to continue to anchor the Americans in Asia.
With the United States out of the TPP under Trump, the first motivation remains, but the second is less clear. Abe at least wants Trump to confirm that the United States will keep security ties.
He would like Trump to return to the TPP, but this really seems a lost cause in this administration, no matter what sort of revisions, renaming or whatever might take place.
Which brings Abe to his likely third objective in visiting Washington. Abe needs to ensure that, whatever happens next, Japan does not become a new target for Trump’s ire.
This is where things rapidly get tricky. Given the Trump team’s penchant for scoring countries with the crudest metric of all—the size of the bilateral trade deficit in merchandise goods—Japan is headed for a rocky road. Japan has had a substantial merchandise deficit (viewed from the Oval Office) for a long time.
It will probably make little difference how many jobs come from Japanese firms in the United States, or how many services are sold by American companies into Japan, or how many parts and components are shipped back and forth, or how much is invested in either country.
The Abe team is apparently heading to DC with a long list of details to show exactly how much Japan matters to American jobs now and into the future. They will have plenty of statistics on currency rates and investment portfolios and long-term metrics and pledges to buy lots more energy.
Most likely, none of it matters. Not when the trade deficit stands at more than $60 billion and the guys that are in charge care about only one number.
So this gets to the hard part for Abe. The clear goal of the Trump team from this visit is to announce the start of the “awesome” bilateral trade negotiations. Trump, after all, has repeatedly said he is not against trade, just against dumb trade deals.
Trump has to show that he is in favor of trade with someone and Japan would be an excellent candidate--especially with a $60+ billion deficit waiting to be addressed.
For Abe, however, whatever trade deal Trump might offer is only going to be deeply problematic. It will be much worse, from Japan’s perspective, than whatever happened in the TPP.
Japan will have to grant considerably more market access in highly sensitive areas like rice, beef and pork. And it will presumably get a lot less access to the American market than it received under the TPP.
Whatever happens, each element of a presumptive trade deal will have to be judged on whether or not it closes the trade deficit and creates American jobs.
Such an agreement would be tantamount to a suicide mission for Abe, or any other Japanese prime minister. The flip side of the statement above is that a US bilateral trade deal will drive Japan from a $60 billion dollar surplus to a deficit somehow by giving more jobs to Americans than to Japanese workers.
Hence Abe will be walking a very careful tightrope during his visit to Washington this week. He will be seeking reassurance that the United States will remain engaged in Asia. He will, in turn, reassure America that Japan is equally engaged in the United States, especially economically.
But he should try very hard to avoid getting entangled in a bilateral trade negotiation at this time. It is a deal he will not win.
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