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.

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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.