Wednesday, April 19, 2017

Unedited Crib Notes for 2017/4/17 FCCJ Event on Japan-US Bilateral Economic Dialogue

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:                  
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.

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.