With friends like these . … The thought has to occupy a corner of Prime Minister Shinzo Abe’s mind as the bromance he worked to forge with Donald Trump starts to fray.
The U.S. president hasn’t attacked Abe’s government … yet. And publicly, Japan’s prime minister is standing by his bombastic buddy. But three actions in the past week encapsulate why Abe’s investment in the Trump White House may backfire.
First, abandoning the strong-dollar policy. In Davos last week, Treasury Secretary Steven Mnuchin ended a two-decade U.S. imperative that’s become a linchpin of the global financial system. Though U.S. securities were a key ingredient before 1995, then-Treasury chief Robert Rubin’s “we-support-a-firm-currency” mantra was a compact of sorts. The oft-stated maxim gave assurance that Washington wouldn’t talk down the dollar to gain trade advantage.
Trumpland disagrees. “Obviously,” Mnuchin said, “a weaker dollar is good for us as it relates to trade and opportunities.”
Forget Trump’s lame walk-back of the comments. Mnuchin telegraphed this about-face as far back as April 2017. And the president, remember, has said the “strong” dollar is “killing us.” Mnuchin’s U-turn was only a matter of time and it’s about to wreak havoc with Abenomics, whose success is more contingent on an accommodative yen than boosters admit.
A yen surge would complicate the deflation fight and scuttle Abe’s hopes of prodding Japan Inc. to raises wages 3 percent this year. It could touch off a currency war at the very worst moment. Tit-for-tat devaluations in South Korea and perhaps even China would make 2018 a choppy year for Asia — and send headwinds Japan’s way. Odds are, it’s coming and soon.
Second, Trump’s tariffs are now real. On Jan. 22, the White House took the latest step toward making good on a pledge that garnered so much applause on the campaign trail. Trump’s 30 percent levies on imported solar panels and washing machines are but a flesh wound, of course. They’re about to get worse.
Trump’s presidency, remember, is teetering as investigations mount, indictments fly and the media pounces. If his Twitter feed is any guide, Trump is frustrated that political gridlock is stymieing his agenda. One of the few levers he can readily control is additional trade actions. It’s no mystery that Trump is increasingly frustrated with Chinese President Xi Jinping’s failure to curb North Korea’s provocations. As exasperation grows, is it really a reach to think he’ll start adding additional sectors from autos to electrical machinery to medical instruments?
Even if Japan isn’t the direct target, its all-important export engine would be collateral damage. As China’s economy loses altitude, so would Japan’s. Trump all too often conflates China’s predatory trade policies with Japan’s more collaborative approach. Nor is loyalty Trump’s strong suit — ask German Chancellor Angela Merkel, British Prime Minister Theresa May and Australian Prime Minister Malcolm Turnbull — something Abe should remember as he keeps all his geopolitical eggs in the Trump basket.
Third, the Trans-Pacific Partnership tease. Expect Abe’s team to blow the next few weeks chasing its tail, thinking the U.S. really is about to rejoin the TPP. Trump, remember, contradicts his positions moment to moment. Tokyo must view this olive branch in Trump-adjusted terms. The only way this White House gets back on board former U.S. President Barack Obama’s enterprise is after it’s renamed the Trump’s Pacific Plunder.
Ask South Korean President Moon Jae-in how the Trump show is going for him. The tweeter-in-chief suddenly decided that the Korea-U.S. Free Trade Agreement signed in 2012 and initiated in 2006 was a “horrible deal.” Rather than spend his first eight months restructuring the economy, Moon has been forced to renegotiate. Trouble is, Team Trump has proven far more adept at blowing up deals than striking them. Along with the TPP and Korea FTA, he’s torn up the Paris climate accord, the Iran nuclear deal and threatens to do the same with the 24-year-old North American Free Trade Agreement.
When Trump says “I would do TPP if we were able to make a substantially better deal,” as he told CNBC, he really means only if Japan and the other 10 signees bow to his zero-sum demands for American advantage. Abe would probably have more luck investing with Tokyo-based cryptocurrency exchange Coincheck — which just lost ¥58 billion to hackers — than betting on Trump making Japan whole.
There are myriad other ways in which being Trump’s only friend among world leaders is a risky position for Abe. The White House, for example, is itching to slap North Korean leader Kim Jong Un with more than just sanctions. One motivation: Military action might draw attention away from Trump’s scandals. How would Tokyo react? To stand with Trump’s gamble would be to make Japan an ideal target for retaliation. How about if China labeled Washington a currency manipulator?
True friends, Oscar Wilde wrote, stab you in the front. Abe really should be watching his back, too.
Based in Tokyo, journalist William Pesek is the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”