Tokyo has an embarrassment of riches on its hands. That could put its economy in Washington’s crosshairs
By WILLIAM PESEK MAY 23, 2018
The 7.8% year-on-year jump in exports in April is a welcome sign that Japan’s second quarter started with a bit more vigor than the first.
Asia’s No. 2 economy contracted 0.6% between January and March after growing 0.6% in the October-December period. Strong shipments of cars and machines used to make semiconductors, most destined for the US, show Japan may be able to resume modest growth.
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Yet two caveats must be considered. One, the headwinds from President Trump’s 25% tariff on steel are only beginning to work their way through Japan Inc. While steel and iron shipments to the US jumped 14% in April, there’s no telling whether May’s export tally can stay in the plus column. Two, Tokyo’s trade surplus with the “America First” White House rose 4.7% to $5.5 billion in April. Might Trump add Japan to his hit list?
To be sure, exports to China, Tokyo’s biggest trading partner, advanced an annualized 10.9% in April. That vital trade conduit is holding up – for now. Most of those shipments relate to machines to make electronic components and to process metals. Thankfully for Tokyo, exports to the European Union jumped 14.1%, providing at least some cushion.
Also, Japan’s annual trade advantage over Washington – about $65 billion – is dwarfed by China’s $375 billion. Even so, Trump has a yen for conflating China and Japan as one giant, job-stealing predator. Trump’s worldview, as this column has argued before, was solidified in the mid-1980s when corporate America feared Japan much the way it does today’s China.
In Twitter rants and off-the-cuff comments on, in his view, the China menace, Trump tosses in “and Japan, too” far too often for comfort in Tokyo. Time and again, Prime Minister Shinzo Abe and Finance Minister Taro Aso have had to do Japan-US trade tutorials for Team Trump. No, Team Abe regularly explains, Japan isn’t stealing US jobs. Nor are US factories moving to Japan, as Trump has alleged – not since the 1980s, at least.
Trump claims that “virtually no cars” go from America to Japan. The truth is, they don’t need to: Toyota, Honda and Nissan make fleets of cars in Tennessee, Alabama and other US states – employing countless Americans.
Abe and Aso regularly need to remind Team Trump that the yen isn’t too weak, but too strong, considering Japanese bond yields are basically zero and Tokyo carries the world’s biggest debt burden. Tokyo has also had to push back on Trump’s bizarre claims that Japan Inc subjects US cars to a “bowling ball test,” whereby one is tossed off a bridge to see how the vehicle holds up. I’m not kidding.
The risk for Abe’s Japan is that Trump turns his zero-sum gaze on a consistent trade surplus. Sure, Abe has bent over backwards to be Trump’s geopolitical consigliere for all things Asia. Yet that sprint to Trump Tower in November 2016 didn’t gain Tokyo even temporary exemptions from Washington’s steel and aluminum taxes.
Abe’s government has said it reserves the right to retaliate under World Trade Organization rules. Yet a tit-for-tat arms race with Trump is exactly what that Trump Tower stunt was meant to avoid. Trump, too, is sure to play the military card. During the presidential campaign, he often said, mafia don-style, that Japan should pay more for US protection.
Wisely, Tokyo has resisted Trump’s calls for a bilateral trade deal. Abe would prefer the US reconsider leaving the Trans-Pacific Partnership. It would be impossible for Abe to strike a fair deal with a White House that views Japan in client state terms – and who’s inclined to use the US security umbrella as leverage.
Japan can’t just rely on exports for growth, of course. Yet it’s doing just that. Abe should accelerate efforts to modernize labor markets, rekindle innovation, catalyze a startup boom and empower women to create a more vibrant and self-sustaining domestic recovery. To reduce the odds, Washington will pounce on Japan’s tendency to export more than it imports.
Healthy export growth might breed complacency in Tokyo at the very worst moment. This growth means that Tokyo needs to internalize another risk: that Japan’s embarrassment of riches captures Trump’s attention.
The last thing Tokyo wants is to be the next target of Washington’s ire.