US-Japan: Unfolding a New Chapter in Bilateral Relations

Cover Story By Naoyuki Haraoka

The success of the two leaders' meeting brought great relief to the Japanese people, after President Trump’s statements about US relations with Japan – during the campaign and even after being elected President – raised concerns about President Trump reconsidering the alliance in favour of short-term national interests.

Successful meeting of President Trump and Prime Minister Abe

In their meeting on February 10, 2017 in Washington D.C., President Trump and Prime Minister Abe confirmed that they would strengthen the US-Japan alliance and committed to the leading roles played by the two nations in regard to achieving peace and prosperity in the Asia-Pacific region and around the world. This important commitment shows the world that the two nations will continue their strong alliance following the establishment of the new US administration.

The success of the two leaders' meeting brought great relief to the Japanese people, after President Trump’s statements about US relations with Japan – during the campaign and even after being elected President – raised concerns about President Trump reconsidering the alliance in favour of short-term national interests. For example, he might have proposed the withdrawal of the US army, stationed in Japan to protect the security of Japan and its neighbouring countries in Asia, in order to mitigate the US military burden of preserving the national security of those nations.

In terms of national security, it was a very positive development for both nations that the two leaders shared concerns about the continuing threat posed by North Korea’s nuclear and missile development, and its unilateral attempts to change the current balance of power in the East and South China Sea. In light of the increasing severity of the national security environment in the Asia-Pacific region, including these developments, the two leaders agreed on the need to strengthen the US-Japan alliance continuously and reiterated that the US Forces in Japan should play a key role in achieving this. They also agreed on the need to strengthen multi-layered alliances among our allies in the Asia-Pacific region based on the US-Japan alliance.

With this conviction, both leaders immediately announced their firm condemnation of North Korea for firing a missile into the Sea of Japan at the very time of their meeting.

In their joint statement, they also agreed that the Senkaku Islands must be considered part of Japanese territory and are covered by the US-Japan National Security Treaty Article 5, and also that the transfer of the Marine Corps Air Station Futenma to Henoko is the only solution to securing a better security environment for Japan and the Asia-Pacific region. These are very important confirmations of the existing agreements and will contribute significantly to improved security in the Asia-Pacific. Concern that a possibly weakened security alliance between the US and Japan could erode regional security all around has been dissipating.

Economic relations between the US and Japan based on the reaffirmed security alliance

On the issue of economic relations between the US and Japan, the two leaders shared the view that the two countries should strengthen their important economic relationship and lead economic growth in the Asia-Pacific area, as well as globally. In particular, Prime Minister Abe stressed the important contribution of Japanese businesses to expanding investment and employment in the US. The two governments are now engaged in promoting a growth strategy to enhance growth potential. This will, I believe, lead to stronger global growth. In light of this, it was also significant that the leaders agreed to establish an economic dialogue between Japanese Deputy Prime Minister Aso and US Vice President Pence for further collaboration on promoting strong global growth. On international trade, in spite of different views on the Trans Pacific Partnership (TPP), I think it was good that the two leaders agreed that both nations have firmly and consistently supported free trade in the post-war era and as a result have been successful at achieving their current economic prosperity. It is a very positive development that the Pence-Aso economic policy dialogue will cover trade and investment rules as well as energy and infrastructure for the revitalization of both nations’ economies. I believe this meeting of leaders can create a new era for the US-Japan alliance and the Asia-Pacific region’s peace and prosperity.

According to the World Economic Outlook Update, January 2017, global economic activity is projected to pick up the pace in 2017, especially in emerging markets and developing economies. However, there is a wide array of possible outcomes around the projections, given the uncertainty over the policy stance of the US government and its global ramifications. I hope the outcome of our two leaders’ meeting will contribute to addressing these uncertainties.

The Japanese economy is now growing at 1.0 percent annually. This figure was released on February 13 in the GDP Quarterly Estimates for October-December 2016 by the Economic and Social Research Institute at the Cabinet Office. This is higher than the Japanese economy’s growth potential, which is around 0.5 percent, and thus the Japanese economy is picking up steadily.

The key question for the Japanese economy, I believe, is how to enhance growth potential. The third pillar of Prime Minister Abe’s economic policy package, which is a growth strategy to achieve structural economic reform consisting of labour market reform, stimulating innovation, and fiscal reform, will hopefully bring us a desirable outcome soon.

What is the new trade policy to be pursued by the US and Japan?

Trade policy is also key to achieving economic revitalization. And I hope that, regardless of the TPP, we can maintain our trade environment to keep our economies truly vitalized, as well as to promote mutual benefits. The above-mentioned Pence-Aso Economic Policy Dialogue can work on how to achieve this.

Assuming that President Trump refuses to engage in any regional or multilateral trade agreements, the TPP will have very little chance of surviving and thus is to be considered almost dead. Meanwhile, there is concern among the majority of the US Republican Diet members that without the TPP, China could increase its political influence in the Asia-Pacific area by pursuing another Asia-Pacific-wide regional trade deal, the Regional Comprehensive Economic Partnership (RCEP), of which 16 countries – 10 ASEAN countries as well as Japan, Korea, China, Australia, New Zealand and India – are negotiating members. This trade deal is much less ambitious than the TPP in terms of its level of trade liberalization, and thus its economic impact on the members’ economies would be limited. However, its geopolitical impact could be significant. With China leading the initiative, its geopolitical presence could be greater than that of the US in this area throughout the negotiating process.

In order to avoid such an outcome, the US administration could try to pursue bilateral trade negotiations with each of the Asia-Pacific countries. In this context, a US-Japan bilateral trade deal could emerge from the Pence-Aso policy dialogue.

I think Japan should keep all its trade deal options open in light of the possible benefits for its economy. While Japan continues to work on negotiations on the RCEP or a China-Japan-Korea FTA, it must also be open to the negotiation of a US-Japan FTA. It is to be noted that any trade liberalization, whether bilateral, regional, or multilateral, could lead to Japan's economic revitalization.

With the understanding that the TPP would be ratified eventually, Japanese agriculture, the sector with the most significant difficulties in terms of trade liberalization, accepted structural reform to be prepared for trade liberalization based on the TPP. This is the maximum concession that has been ever made by Japanese agriculture, which has been well protected by public policy for a long time.

If negotiations between the US and Japan to achieve a bilateral trade agreement are launched, further concessions could be demanded of Japanese agriculture.

Whether or not this can be achieved might be one of the keys to successful bilateral economic relations. I think Japan should not hesitate to start any structural economic reform, including further agricultural reform, in order to enable the Japanese economy to take full advantage of the benefits of trade deals.

This Japanese readiness to start negotiations on any trade deal and work on further economic structural reform will have a highly positive impact on the Asian-Pacific economy and eventually on the global economy as well. In our globalized world, an increase in bilateral or regional FTAs could place the economy of any country, which is not a member of any trade deal, in a less competitive position. Thus, non-member nations would have an incentive to join an FTA. For example, if the US gave up its pursuit of trade deal negotiations, while Japan pursues the conclusion of the RCEP or a CJK FTA, US industries would lose their competitiveness, since their products would be discriminated against in trade with a member country of those FTAs compared to a member nation’s products, in terms of tariffs and non-tariff measures. Thus, the US would have an incentive to join or start new trade deal negotiations in order to stop this. This is the process that we call competitive liberalization.

Whether or not President Trump dislikes any regional FTA, the realities of globalization will show the US government that it might not have any other option than to promote trade liberalization deals, including bilateral ones.

In this light, I believe, a Japanese initiative to promote any FTA negotiations could lead to competitive liberalization and thus bring about not only Japan's own economic revitalization but also revitalization of the global economy.

Japan must be aware of its grave responsibility in global governance of the world economy.

Based upon the two leaders’ recent successful meeting, Japan must reaffirm its growth strategy in line with free trade and open a new chapter for the global economy, through a new US-Japan bilateral relationship.

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