Trade Experts to Trump: Be Wary of Japan

Business group launches ad campaign in advance of White House visit by Japanese prime minister

by Brendan Kirby | Updated 10 Feb 2017 at 7:29 AM

The U.S. Business and Industry Council is sounding the alarm over Japanese Prime Minister Shinzo Abe’s visit to the White House on Friday, and it backed that warning with a modest web ad buy.

The ad, targeted at U.S. policymakers, is blunt. It features masonry painted with a Japanese flag in the middle. The header? “IT’S LIKE TRADING WITH A BRICK WALL.”

“Beware of Japanese bearing gifts.”

Abe is bringing a five-point plan to explain to President Donald Trump his country’s plan to invest billions of dollars in the United States. Kevin Kearns, president of the U.S. Business and Industry Council, noted that Abe was one of the first world leaders to meet with Trump after his election and that he gave him a $3,500 set of golf clubs.

“Beware of Japanese bearing gifts,” he said.

The concern is that Trump, after killing the 12-nation Trans-Pacific Partnership, may instead move to strike a one-on-one trade deal with Japan. The president has expressed preference for bilateral arrangements over large, multinational pacts.

But Kearns warned that doing so could worsen a trade deficit that already stands at $69 billion a year. He ridiculed Abe’s comment that he wants to create a “win-win” trade relationship.

“I would be very interested to know how a $69 billion trade deficit and a string of deficits going back decades is a win-win,” Kearns said.

According to the Japan Times, Japanese officials plant to “correct” Trump’s misunderstandings on trade.

Chief Cabinet Secretary Yoshihide Suga has emphasized that his country’s share of the U.S. trade deficit has declined since 1997 and that Japanese companies have invested $411 billion and created 840,000 American jobs, according to the Times.

Abe comes offering more: $450 billion in sectors like high-speed rail, energy, and artificial intelligence, creating another 700,000 jobs.

Kearns said it like Abe is “going to come to Washington and try to buy off the president with these investment trinkets.”

U.S.-Japan Trade Deficit
YearDeficit
2007$84.3 billion
2008$74.1 billion
200944.7 billion
2010$60.1 billion
201163.1 billion
2012$76.5 billion
2013$73.3 billion
2014$67.6 billion
2015$68.9 billion
2016$68.9 billion
Source: Commerce Department

Any trade deal between the two countries likely will result in a dramatic increase in Japanese goods imported into the United States without a corresponding rise in American-made products sold in Japan, Kearns said. That is because tariffs are not the issue, he added. It is non-tariff barriers that keep foreign products out of the market.

Kearns said those barriers include opaque and byzantine regulations that foreign competitors find difficult to satisfy. In includes strong cultural pressure to discourage citizens from buying imports. It includes massive injections of cash by the Japanese central bank, which critics argue amounts to currency manipulation to raise the cost of imports and reduce the price of exports.

Ford Motor Co. CEO Alan Mulally in 2013 called Japan the “most closed market in the world.” The company pulled out of the Japanese market entirely last year.

Kearns said Japanese automakers sold 1.6 million cars in the United States in 2015, while their American counterparts sold just 19,000 in Japan. No foreign company has more than about 1 percent of the Japanese market, he said.

“The notion that [the] Japanese auto market is somehow special and Americans do not understand the intricacies and don’t make right-hand-drive cars is a fiction, and a fiction that has worked for Japanese officials for decades now,” he said.

Alan Tonelson, an economic policy analyst who writes about trade at the RealityChek blog, agreed the Trump administration should be wary.

“I certainly hope that President Trump doesn’t lead us down this garden path once again, because we have a long history of trying to open that market up,” he said.

Tonelson said presidents have been reluctant to push Japan too hard on trade because of geopolitical considerations. It has been valuable as an “unsinkable aircraft carrier” in the Far East, first checking the Soviet Union and more recently China, he said.

Abe’s offering of investment is a signal that he worries the new American president represents a true break from his predecessors, Tonelson said.

“The devil would be in the details, but that he’s even talking about that is a very encouraging sign that Trump is putting the world on notice that the days of Uncle Sucker are over,” he said.

Tonelson said it is possible to structure a deal that would take aim at the main obstacles that Japan throws up. He pointed to a deal struck in the 1980s in which Japan agreed to a 20-percent U.S. share of the semiconductor market. That gave Intel Corp. the breathing space it needed to move from memory chips to microprocessors, he said.

Tonelson noted that Trump’s nominee for trade representative, Robert Lighthizer, was at the center of those negotiations as the No. 2 official in the trade office.

Kearns said negotiating quotas could be fruitful. But he added that Trump should proceed cautiously.

"There are a bunch of things you could do," he said. "But you have to do your homework first."

Kearns said Abe will try to influence the new American government with a slick presentation.

"It will be interesting to see if Trump's administration buys that or if they send Abe packing like they should."

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