Lifezette: Abe Visit Sets Stage for Global Trade Shuffle
Kevin L. Kearns
Wait for it. Here comes the Tokyo delegation — with lots of shiny trinkets and flattering words for President Donald Trump.
Yes, Japan’s prime minister, Shinzo Abe, is coming to the White House on Friday to present a five-point plan explaining how his county can work with the United States to generate 700,000 new U.S. jobs, along with new markets worth $450 billion over the next decade. Abe is so enamored with America that he’s flying across the Pacific to ensure our continued industrial success for many years to come. What a guy — willing to bail us out!
Japan’s trade cheating displaced American firms, many of which are no longer in existence due to predatory Japanese policies.
Abe is indeed coming with a plan, but what the Japanese leader really has in mind is simply the continuation of Tokyo’s very profitable trading relationship with the United States. As the latest annual trade figures reported on Tuesday, Japan racked up a very profitable $68.9 billion trade surplus with America in 2016.
Abe, like most Las Vegas casino managers, recognizes the importance of plying a big spender (like the U.S.) with free drinks in order to keep them playing a losing game. Not only does Japan earn roughly $69 billion annually by selling cars, machinery, electronics, and many other goods to the United States, it also enjoys the ongoing protection of America’s Seventh Fleet and nuclear umbrella.
Tokyo has been willing to shoulder 75 percent of the expense of stationing U.S. forces there — and at an annual cost of $4.4 billion. But it’s an easy chunk of change for Tokyo to cough up, given the nonstop flotilla of Japanese goods sailing into U.S. ports. Additionally, with a self-defense budget of only 1 percent of GDP, it’s much less expensive than fully fielding your own armed forces and nuclear deterrent.
If truth be told, Abe will come to the White House on Friday to make sure that the gravy train keeps rolling — in Japan's direction. So despite the window dressing of his five-point plan, Abe really wants to lock in Japan's continued trade surplus. Thus, his proposal will omit any action on the currency manipulation, non-tariff barriers, border consumption tax, and government allocation of domestic market share that continue to sustain Tokyo's profit margins.
There will be no (or only limited) opening of Japan's domestic market. Japan's trade surplus with the United States stretches back 50 years, with a chunk of that success based on longstanding automotive strategy. Last year, for example, Japan sold America 1.6 million vehicles, for a total of $50 billion in cars and auto parts trade. In return, U.S. car companies sold 19,000 autos to Japan. Ford Motor Co. went so far as to pull out of the Japanese market completely, given years of unsuccessful efforts.
How has Tokyo achieved such lopsided success? In part, by following a smartly targeted industrial policy, but they have also intervened in currency markets at least 376 times since 1991 to lower the value of the Yen — which has boosted export competitiveness.
Tokyo also imposes a Value-Added Tax (VAT) that not only applies a surcharge on incoming U.S. goods but also rebates taxes to its own domestic manufacturers upon export of their goods. Further, under so-called "Abenomics," the market intervention of the Bank of Japan — under the guise of quantitative easing — is so massive that it can only be categorized as a thinly disguised form of currency manipulation.
Tokyo also continues to impose tariffs and quotas on everything from beef, rice, and citrus to shoes and leather goods. And then there are non-market barriers like "administrative guidance" (aka government diktats) concerning which foreign goods to avoid buying. The shaken, or automobile inspection system, acts to keep out foreign cars. And it makes it so expensive to maintain an older Japanese car that consumers trade them in for newer models, thus guaranteeing Japanese automakers a steady and profitable home market. The result of such multiple instances of market intervention is a perpetual U.S. goods trade deficit with Japan that cost an estimated 896,000 U.S. jobs in 2013 alone.
There's no doubt that during his White House visit, Abe will try to obscure Japan's mercantilism and closed markets by pledging greater cooperation. Thus, he'll happily tout Japanese investment in the U.S., which supported 840,000 jobs in 2014, and reached a cumulative total of $411 billion in 2015. But such jobs and investment could have been the product of U.S. automakers and other companies. Instead, Japan's trade cheating displaced American firms, many of which are no longer in existence due to predatory Japanese policies.
Moreover, Japanese-owned firms operating in the United States make a big deal out of their contributions to communities and charities — which, again, used to be undertaken by American-owned companies. Japan is no slouch at touting its impressive public relations claims, but they ultimately come at the expense of America's businesses and their employees.
Overall, Tokyo has demonstrated an ongoing strategic vision when it comes to business and trade. It's a "Japan First" industrial policy that has led to targeted assaults on multiple U.S. industries: electronics, steel, autos, machine tools, high-tech, etc. This policy is furthered by currency manipulation, dumping, government subsidies, and many other predatory trade policies.
Abe will work to ensure manufacturing preeminence remains the key to Japan's national wealth creation and power. Thus, President Trump must take a purposeful, vigilant approach to consultations with Tokyo.
Hopefully, given his campaign promises, the president and his team won't be easily rolled by the same pleasantries, supplications, and sleight of hand that have worked so well on Japan's behalf, and against America's middle class, since the end of WWII.
Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.