Jun Okumura went straight from
school to what is now the Ministry of Economy, Trade and Industry. After thirty years in its
ecosystem, though, it dawned on him that he had no aptitude whatsoever for
administration and/or management. Armed with this epiphany, he went to the authorities and
arranged an amicable separation. He currently holds the titles of
“visiting researcher” at the Meiji Institute for Global Affairs (MIGA). He spends way too much time
saying mean things about everything under the sun. He does not mean to, which
probably makes it worse.
Minimal attention in Japan to Vice
President Vice Pence’s visit.
Anecdote: Friday conversation with
former CEO, First Section of the Tokyo Stock Exchange, retired but follows news
fairly closely as private investor. “No, I wasn’t aware.”
1. Chances of any substantive
agreement even lower than usual first meetings because of Pence’s policy
background (largely domestic) and lack of support team.
Wilbur Ross, Secretary of Commerce
Steven Mnuchin, Secretary of the
Treasury
But no US Trade Representative
(Robert Lighthizer), and second, third-tier political appointments slow in
coming. (Economy, probably less problematical, but…)
2. Also overshadowed by North
Korea’s big day (and failed missile launch). Which Pence is totally unequipped
to handle on his own.
3. Also overshadowed on Nikkei by
11-nation TPP (Nikkei, April 15)
Also keep in mind that on the
economic front, it’s China, NAFTA (= Mexico), and Japan, in that order.
On the Japanese side, Deputy Prime
Minister Taro Aso has historically been a front man for Ministry of Finance
orthodoxy, no more, no less.
What Round 1 (April 18-19) of the
Japan-U.S. Economic Dialogue (Pence-Aso talks) will produce:
Three WGs to tackle:
1) Economic cooperation: (infrastructure (high-speed rail), energy
(unconventional gas and oil))
“…exploring
cooperation across sectors that promote mutual economic benefits to the United
States and Japan.”
Dressing
up public procurement and commercial transactions to have something to point to
as successful results.
2) Macroeconomic collaboration
“…using
the three-pronged approach of mutually-reinforcing fiscal, monetary, and
structural policies to strengthen domestic and global economic demand.”
US
goal: Keep Japan from driving down yen.
Japanese
goal: Keeping a free hand on monetary policy (and the direct intervention
option).
3) Bilateral framework on trade and
investment
“…discussions
between the United States and Japan on a bilateral framework as well as Japan
continuing to advance regional progress on the basis of existing initiatives”
“…deepening
their trade and investment relations and of their continued efforts in
promoting trade, economic growth, and high standards throughout the
Asia-Pacific region.”
Japanese
goal: Rope the United States back into TPP. (Used to think Abe was nuts, and
that he should go for a TPP-11. But maybe they are compatible.)
US
goal: Get a better bilateral deal than it got in TPP.
The easy ones first. 1) Economic
cooperation: and 2) Macroeconomic collaboration.
1) Economic cooperation:
The
Japanese Government wants to help Japanese businesses sell “high-quality
infrastructure” overseas. Essentially, high-speed railway systems. JBIC and
NEXI can provide long-term financing, but they don’t need the Talks for that.
The US doesn’t either. It could actually be harmful if it stood in the way of
international consortiums, which it won’t. The outcome will be the result of
international competition with the groups coming up with the most attractive
package of performance, financing and operation conditions, and local
production, not necessarily in that order.
2) Macroeconomic collaboration:
Japan
last intervened in November 2011 when it was around 78JPY=1USD, where it
remained for most of 2012. Barring another global financial crisis, it’s hard
to see Japan intervening again.
On
the other hand, Prime Minister Abe caused a stir by talking about the salutary
effect of quantitative easing on the exchange rate. Abe went on to deny the
linkage, but people remember, partly because it’s actually true. But for now,
the macroeconomic circumstances are such that this is something you can keep at
the back of your minds.
And now:
3) Bilateral framework on trade and investment
Why
does Abe want TPP? (Many angles, but boils down to)
a.
Key element of Abenomics: 2.7 percentage-point boost to Japanese GDP by 2030
(WB).
b.
Depoliticize international trade and investment relations. (Another way of
saying Keep China in check. Case in point: rare metals scare. More recently,
retaliation against THAAD.)
c.
Keep the United States engaged in Asia (as a foil for the regional hegemon
China). It’s not just about the economy.
Why
does Trump want a bilateral deal?
To
prove that he can cut a better deal than Obama.
Key US actors:
Anti-deal:
1.
US automakers (Chrysler? Really?)
Want: inconvenience competitors’ global
sourcing, manufacturing and marketing strategies. Reduce their flexibility. Platforms are going
global!
Not
want: Open up Japanese market.
GM:
Gave up on Isuzu. Ford: Gave up on Mazda.
Better
deal:
2.
Pharmaceuticals: Biologics data protection 12 years (TPP: 5, effectively 8,
Japan and Canada, currently)
TPP
deal:
1.
US beef and pork industry. Lost market share to Australia, Canada and NZ due to
mad cow disease. Has been making gradual but steady comeback, now overshadowing
Australia in supermarkets. Will suffer as tariff rates on Australian meat go
down over time. (So will Canada, NZ.)
2.
Copyright owners: 70-year post-mortem works for them.
Likelihood?
Better deal? Linkage got a lot more
difficult as Mike Flynn (LOL), Mad Dog Mattis and now H.R. McMaster have pulled
Trump ever more deeply into center-right national security establishment
against more general background of mainstreaming Trump as a GOP president.
Japan is a clear, major military asset for the United States. (ROK is vastly
more ambiguous.)
US meat industry gets antsy as time
goes by.
Disney gets antsy as Japan (and TPP-11)
refuse to adopt 70-year post-mortem copyright protection.
Long-term, US auto manufacturers will
start worrying if Thailand et al decide to join TPP-11. Can India be far
behind?
TPP-11 may be the lever that brings
the United States back. And Abe knows it.
