Wednesday, June 06, 2018

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.

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