Trump Tariffs and the Fallout on the Abe Administration

1) The G-7 finance ministers' meeting ended in rare acrimony, with the U.S. looking increasingly isolated over the steel and aluminum tariffs. Japan seems to be less angry compared to the EU and Canada, but do you think they'll take a harder stance during the summit? What's your view on the U.S. state of isolation?

Japan will be prepared to act jointly or in parallel with the EU and Canada but will refrain from the kind of forceful rhetoric that other members of the G7 are willing to direct towards the United States. Unlike Canada or EU member states, Japan must get by in a hostile security environment with the United States as its only dependable ally. (Growing relationships with Australia, India, the United Kingdom, France et al are nice, but they are ineffective in the Northeast Asia neighborhood.) The United States is big enough and strong enough that it will suffer least from the consequences of its isolation from erstwhile likeminded allies. It will, of course, be hurt in the short-run by the “loss-loss,” unilateral actions it is taking on the trade front, whatever gains it secures by coercion or consent (some of the outcome from the NAFTA renegotiations could be improvements). But the real loss will come from the longer-term development of byways in the international financial system that is currently highly vulnerable to unilateral U.S. actions, a dispute settlement alternative to the WHO mechanism that the Trump administration is stealthily undermining,  and so on. “TPP-minus 1” will be the default mode for the future development of the international economic architecture unless the United States decides to  change course.

2) Japan hasn't managed to secure exemptions from the U.S. over the steel and aluminum tariffs as yet - how useful do you think the summit will be for Japan in making progress on this front?

I doubt that it will have any effect. The Trump administration is determined to squeeze something out of Japan on the bilateral front, but from all appearances lacks the bandwidth to tackle it seriously, given all the other items on its agenda. Thus, the matter remains on virtual hold, and the Abe administration seems in no hurry either, given the minimal effect that the tariffs have on Japanese exports and, of course, the negative fallout on the yet-to-be-ratified CPTPP that any action towards a Japan-U.S. bilateral agreement would have. That said, I will be surprised if Abe does not take with him some kind of proposal for side talk on bilateral issues along with a renewed appeal to rejoin the TPP. Surprise me, Prime Minister, and prove me wrong!

3) How much does Japan's failure to secure exemptions hurt the Abe administration domestically?

Minimally. There has been media talk of toadying up to Trump to no avail, but the economic impact is too small. In addition, the rest of the G7 (and Mexico) now falling under the sword goes some ways to vicariously assuage the pain. The U.S. sanctions toward Russia and now China should also be enough to remind the part of the public actually paying attention—the steel and aluminum tariffs are not a major economic concern—that the effects of bonhomie with the Donald of Orange have their limits for everyone.

The fallout is lost as mere noise in the uproar over the ongoing domestic scandals around the prime minister.

So Aso Gives Up a Year’s Pay...

Voluntarily giving up all or part of one’s pay for a given duration is a common form for members of organizations to assume moral responsibility while escaping legal responsibility and thus avoiding formal sanctions, which in turn would amplify calls for resignation or dismissal. Twelve months’ pay is the heftiest that I’ve ever seen, though. It indicates the seriousness with which Aso and by extension the Abe administration is making a show of taking the MOF transgressions. However, this will surely raise doubts in the progressive media over the appropriateness of shielding Aso from formal sanctions, which would have inflamed demands for Aso to resign, which in turn would have pushed the Abe administration out into deep waters.

With the sanctions and Aso’s voluntary penitence locked in, the Abe administration and the LDP-Komeito coalition will push forward with less patience through the rest of the Diet session to pass as much of their legislative agenda as possible, and Abe will be duly reelected as LDP president and, barring another unforeseen political disaster, continue on as prime minister until the 2019 upper house election.

The one risk on the horizon for the market concerns the possible criminal prosecution of MOF officials. Crucial to the Abe administration’s attempt to bring administrative and therefore political closure to the Moritomo affair was the Prosecutor’s Office ‘s decision not to prosecute. However, concerned citizens have recourse to a Committee for the Inquest of Prosecution, which could force prosecution by a supermajority of 8 of its 11 members. (A simple majority recommendation for prosecution can be overruled, if unlikely in my view in a case of this import.) I am sure that a petition will be filed, if it has not been already.  The Committees, apparently highly independent, meet in March, June, September, and December. A June session should be too soon for a decision, but what about September? The LDP presidential election happens to be on the schedule for September. Bet on an early election and, if there is to be prosecution, subsequent turbulence in what has become routine in recent years, an autumn/early winter, extraordinary Diet session.

******

Q: Nikkei just reported that Aso will be returning 1 year's worth of salary over the Moritomo issue. Is this kind of gesture common for Japanese ministers? I haven't heard of it happening, but I've only been covering Japanese politics for a couple of years... How sufficient is this in taking responsibility for the scandal?

A. Given how common this practice is, I’m sure ministers have done it before. (Ask your research team.) But 12 months? That’s a level one only sees from heads of firms facing catastrophic scandals. At this level, a minister of less importance to the survival of the prime minister would hve resigned by now. Is it sufficient? I’ll decline to answer it since only a person with authority to enforce judgement is competent to do so.

Q: MOF will be announcing its punishments for the scandal later today. Where do things go from here? It seems like all official lines of inquiry have ended, but is this issue still a political liability for Abe and Aso?

A. The polls have stabilized and the experts’ consensus is that Abe will be reelected as LDP president in September, allowing him to continue as prime minister. Abe will do his best to keep Aso in the cabinet, since his support is crucial to the stability of the Abe administration.

Q: What is the likelihood that Aso has to step down as finance minister? Surely the opposition will keep pushing for that, but they haven't been successful thus far...

A. His acceptance of 12 months without pay—not that he needs the money—actually indicates that he will stay on. A September judgment for prosecution, enforceable or not—the Prosecutor’s Office has three months to reply, but it should come to a head before that—could push Aso even further, so there’s the possibility that he will step down preemptively at the post-LDP election cabinet reshuffle or forced to do so as the result of public outcry. I’d bet against it though.

Q: What kind of impact will Moritomo exert on the Abe administration from here? Its legislative agenda has been thrown into disorder already. Will that continue, or will Abe finally be able to put this issue to rest?

A. As already mentioned. Beyond that, even without a September redux, Abe’s public support has been diminished permanently, though, making it more difficult for him to push items on his agenda that do not have broad appeal. Think, constitutional amendment, and deep labor reform.

Memo on the U.S.-China Trade talks and the Japanese Experience

Q(journalist)&A(me)

1. The Trump model is the U.S.-Japan trade negotiations of the 1980s and early 1990s, what model will work better in your judgement?

They are difficult to compare because they are two different approaches for two different relationships, under two different historical circumstances. I would argue that the US-Japan negotiations probably will wind up as having worked “better.” Let me explain.

The United States faced then, as now, a major economy in ascendance. However, the US economy was widely seen to be in relative decline vis-à-vis Japan, an economy led by a private sector over which the government had limited control. By comparison, it is confidently riding the crest of a near-decade recovery from a global financial crisis and is seen at the forefront of a new industrial revolution—with China, a state capitalist economy if ever there was one, as its main competitor. In addition, the United States had a robust security alliance with Japan that remained unshaken throughout the trade friction years. The security relationship with China, by contrast, is at bottom one of antagonism between two hegemons. The latter point is particularly significant because the Trump administration is explicitly linking one of its most important its security goals—denuclearizing DPRK—to the bilateral trade relationship. At a minimum, this complicates any deal because  the economic and security issues move on different timelines and trajectories. At worst, resolution on both fronts become impossible because of the complications. It certainly doesn’t help that Trump’s negotiating team is hopelessly divided, while Trump himself does not have the expertise, knowledge, or temperament to resolve the contradictions in a coherent manner. Also complicating the calculations is the fact that the Chinese authorities, with some justification, appear to believe that Trump’s business interests can be leveraged to bring about a favorable resolution (for China). That, again, could backfire.

2. The White House convinced Japan to accept export quotas in the 1980s when President Ronald Reagan carried out a strategy of “managed trade.” It didn’t happen this time with China. What is your take on this?

First of all, it’s still early in the game regarding China. They’ve only had one round of high-level talks. The relationship is set to worsen before it stabilizes, hopefully in a way that is beneficial to the Japanese economy.

Second, the Trump administration has a cluster of demands, some that are connected to the trade deficit, some that are connected to security, and still others that are connected to investment in China, which arguably would worsen the trade deficit. But it does not appear to have a coherent strategy. At worst (from the global perspective), China could end up buying more commodities (agricultural products, natural gas, etc.) from the US at the expense of China’s other trading partners who would then seek to make up the difference by increasing exports to other markets, while the more important microeconomic issues, mostly technology- and IP-related go largely unaddressed. It would be ironic if the only outcome was a rearrangement of trade patterns while trade and investment balances remain virtually unchanged.

3. Many Japanese elites tell Chinese policy makers, they “should learn lessons from Japan,” especially over the Plaza Accord. if you give suggestions to Chinese policy makers, what lessons you believe China should learn from Japan?

I wasn’t aware that “many Japanese elites” were in the business of advising the Chinese government and, frankly, the Chinese government surely has enough expertise and experience to weigh the Japanese experience to determine its course of action without outside help.

4. How do you compare the trade tension then to the current US-China one?

The trade tension felt stronger then, but that’s surely because we were the other party to the conflict and I had a role, albeit quite minor, in it. The current tension is more worrisome because it is  part of a geopolitical conflict that should long outlive the end of President Trump’s current term.

5. If any suggestions to Chinese, what would you say on how to deal with America?

Well, obviously, I want China to yield on investment and IP issues while standing firm on quantitative targets. It’s an economic win (US)-win (China)-win (WTO) outcome. But the decisionmakers surely do not see it that way. Beyond that, if someone is willing to pay me to help devise a negotiating strategy, I’ll be happy to oblige as long as I don’t find the objectives and the means morally unacceptable.

If we are to believe what orthodox economists tell us, imposing no quotas, freely investing in each other’s economies, and protecting IP under commonly-acceptable standards—basically national treatment under market economy rules—would maximize economic welfare for all the economies, and equity concerns could be taken care of by national laws and regulations. And I also want a pony. But I’m aware that sovereign states have different, politically-informed goals, China dramatically, but the United States as well, particularly under the Trump administration. So the pony should be the easiest part.

Womenomics and Stagnant Wages Pushing Japanese Women into the Workforce? Think Again.

I don’t have the time to do justice to opinion pieces but from what I gather from the headlines, Noah Smith appears to have given up on critiquing Japan’s political and social scene and mostly focused on being an advocate for the Japanese economy. Probably a wise career move. But his latest eye-catching headline “Abenomics Looks a Lot Like Reaganomics”caught my attention, and I have this to say.

Dr. Smith attributes the rise in the participation of women in the workforce to Prime Minister Abe’s “Womenomics” and stagnant wages. But Dr. Smith’s graph shows that Japan’s female labor force participation rate on the rise in 2013, effectively the first year of the Abe administration. What were the “Womenomics” policies in place off the bat that made this happen? As for stagnant wages, that’s a decades-old problem. What has made it so relevant during the Abe administration years?

There is something missing from this narrative: the recovery from the 2008-2009 financial crisis and the 2011 Great East Japan Earthquake Disaster playing out against the background of a declining working-age population and the current, synchronized well-being of the global economy. In short, it is far more sensible to see the rise in the labor force participation rate of Japanese women as a reflection of the rise in the demand for flexible, non-regular (temp, part-time, etc.) labor in a virtually full-employment environment. In other words, good old-fashioned, supply-and-demand at work rather than any policy initiatives whose specifics Dr. Smith would have a hard time identifying.

But then, what do I know? I’m not an economist.

Do You Think the Moritomo Affair Has Driven a Wedge between Abe and Aso? Think Again

Aso criticized the media for prioritizing Moritomo over TPP, got criticized himself, and the lefty media is playing it up and the righty media is playing it down. I don’t think Aso will step down over this, but this does give me a hook to address the speculation that the whole affair has driven a wedge between Abe and Aso, who is supposed to be pissed off at Abe for causing this issue in his bailiwick and mishandling it, according to this story line. Maybe. But most people familiar with the political process would be surprised if he were.

Politicians and their underlings call in on the bureaucracy about individual projects all the time. Sometimes, they just have questions. Other times, they exert pressure. And no one should be surprised. It’s what politicians do. Every inhabited spot on this planet. Every time in human history. And the bureaucracy copes. Do the political appointees in the Japanese Government mind? I don’t think so. After all, they and their underlings are doing the same with the bureaucracy outside of their jurisdiction as appointees, just as they did before and will be doing long after their administrative tenures become distant memories. And you can be sure that they never bother to notify their political colleagues about the stuff they do under the latter’s jurisdiction unless they’re desperate for an extra push—which will come at considerable political cost. And even if they care, it would usually be futile for the political appointees to try to keep up with the interventions anyway because (a) there are simply too many of them and (b) the bureaucracy will be desperate to hide it all from the transitory political appointees because they don’t need the complication.

And even if I were completely wrong, it would be odd for Aso to turn on some who has stood behind him through multiple gaffes of his own through the years. In any case, Aso appeared to be retaining his anger at the media even as he apologized.

I rest my case.

What Will Happen to Aso, Abe as the Result of the Latest Twists in the Morimoto Case?

Memo, whacked out early evening on March 11 (Sun) in response to query from journalist. I wonder how much of this will hold up.

So, this Moritomo scandal. Where is it going. Aso likely to be toppled? What would that mean for the administration and Abe’s re-election hopes? Could this spell the end for the Teflon PM?

Things look grim for Finance Minister Aso. More likely than not, he will resign, in which case some time will be gained to push the Abe administration’s legislative agenda (though the key work-rule amendment will be pushed back anyway). Beyond this Diet session, the most important political consequences will be that first, Shinzo Abe will be unlikely to win a third term as LDP president and remain prime minister. Second, the headwind against Abe’s bid for constitutional amendment becomes stronger. Perceived as a lame duck prime minister, I doubt that he will be able to bring it to a national referendum. Let’s fill in some details.

Mr. Aso’s comments on Friday were crafted to deny responsibility for the promotion of Mr. Sagawa, who had been the head of the bureau in charge of the initial lease and sale of the land in question, to the Director-General post at the National Tax Agency. This was necessary because anything less would have immediately created irresistible pressure to resign himself. Aso had almost certainly been unaware of the doctoring of the document—in fact, I suspect that he was only casually aware of the case until it surfaced in the media—but a Japanese leader is expected to fall on his/her sword if the occasion warrants. And I think that it does in this case, where there is a very good chance that someone in the bureaucracy will be subject to criminal charges for an action that will be hard to explain away as being nothing other than politically motivated.

But Aso’s resistance goes beyond his personal interests. For if he resigns, the Abe cabinet itself will be in danger, together with much of the momentum for its policy agenda. Unlike the other ministers that resigned from the second Abe administration, Aso is a political whale, the head of a major faction, a former prime minister! given the extralegal title of deputy prime mister, and holding down the still most-important Finance Ministry portfolio  since the beginning of Abe’s return to power. Political whales are no longer what they used to be, but his resignation would be a much greater damage than that of the relatively junior cabinet ministers that we have seen.

Moreover, Abe and his wife were personally involved in the project that created that entire controversy that wound up spawning the doctored document. The degree of their involvement is open to question, but the other cases merely cast doubt on his judgment of character and capability. This case had already implied the abuse of political power, of favoritism and kowtowing. Now, the stench of fraud and criminality is threatening the corridors of power. Pretty tame by current Brazilian or even White House standards, but with a suicide adding spice to the story, the buck is unlikely to stop at MOF and the MOF minister.

I do not believe that Abe will resign. He is a stubborn man. He has a way of standing firmly behind causes that appear to most disinterested observers as hopeless let alone his own political fate. And I do not think that the rest of the LDP is sufficiently independent to make an overt move to push him out. He should be able to serve out his second term.

But he no longer looks like someone that current LDP Diet members, particularly those in their first or second terms and those who squeak through by the regional proportional safety-net as well as prospective candidates will be inclined to fight elections under, even if the opposition remains divided. Thus, I do not think that he will have the votes to prevail in a 2020 LDP leadership election, and I think that this will become more obvious as the event draws near. As a virtual lame-duck prime minister, he will lose so much of his political capital that he will have extreme difficulty in bring constitutional amendment to a vote in the Diet, let alone the national plebiscite. If he even enters into that state of mind, the end of the Abe administration should come more quickly, possibly even before the next Upper House election in 2019.

The Nintendo Photo: When It All Began

The following is the bare-bones background for an installment column I will be launching on the website of a thinktank in April.

Omake Books website, at https://omakebooks.com/fr/?fc=module&module=prestablog&controller=blog&id=142, has a photo of the original home office of the playing card manufacturer that became the gaming giant Nintendo, taken, it is widely believed, around its establishment in 1889, when it began manufacturing traditional Japanese playing cards, the 花札(hanafuda) and most likely other forms of the かるた(caruta), derived from the Portuguese word carta. I argue that it is more likely to have been taken around 1902, when the firm began manufacturing paying cards.

Evidence:

1) Five signboards, from left to right.

A) Upper left: The hiragana た, obviously the last character in かるた, and other indiscernible writing are visible.

B) Lower left: A small signboard depicting the Nintendo playing card hallmark –Napoleon Buonaparte.

C) Middle left: A weather-beaten, traditional signboard with illegible inscription in small letters (vertical) and かるた(caruta) in large letters (horizontal, from right to left).

D) Middle right: A small, triangular, weather-beaten signboard with the Marufuku (福 in a circle) logo, かるた製造元 (playing card manufacturer; vertical), and 任天堂 (right to left) on it.

E) Right: An outsized, white signboard with MARUFUKU NINTENDO CARD CO. (left to right) and？印欧米輸出向 (for exports to ?, India(?), Europe and America; right to left) on top; Marufuku (福 in a circle) logo, かるた製造元 (playing card manufacturer; right to left), and Marufuku (福 in a circle) logo; and 山内任天堂 (Yamauchi Nintendo; right to left).

2. The Bicycle

The bicycle is an old make, with what appears to be a primitive stand.

3. The Building

A traditional Kyoto building to which Western-style cast-iron grilling has apparently been added.

1E) is the giveaway. Nintendo started manufacturing the four-suit playing cards in 1902; an early example from 1903 survives in the United States. It is unthinkable that the English name and the announcement of its overseas business could have long, if at all, predated this turn of events. 1)E) and likely A) and B) must have been added to the visibly older, traditional B) and C), more appropriate for the initial domestic hanafuda business.

The stand is not conclusive. I thought it was a kickstand, a feature that early bicycles did not have. However, I realized on second thought that it could be an independent stand, which surely must have been available from the very early days of the bicycle. The building is even more inconclusive. Mr. Yamauchi purchased an existing house and adapted it to his purpose.

Could the photo be of a much later provenance? Possibly, but it is likely to have been taken at some milestone moment. The street has been cleared, the camera (and the bicycle) has been carefully positioned; a quiet pride permeates the scene. Launching its export operations would have been the perfect moment to take a photo to include in its sales brochure, or whatever Nintendo printed up to project its corporate image and pitch its products.

https://mobile.twitter.com/FlorentGorgesFR/status/956210952487096320

https://www.nintendo.co.jp/corporate/history/index.html

https://omakebooks.com/fr/?fc=module&module=prestablog&controller=blog&id=142

https://meiji150.kyoto/feature/haiko-nintendo-origin/

https://www.google.co.jp/search?q=任天堂骨牌&oq=任天堂骨牌&aqs=chrome..69i57j0l2.3543j0j4&client=tablet-android-asus-wypm&sourceid=chrome-mobile&ie=UTF-8#imgrc=3pvT9bgmcMfEjM:

http://japanese.engadget.com/2016/05/08/1/