Japan’s $2.2 Trillion Cost Of Befriending Donald Trump

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As political bets go, the one Japan’s Shinzo Abe made on Donald Trump in 2016 is proving to be a mistake of historic proportions.

No world leader was quicker in getting to Trump Tower in New York to congratulate the U.S. president-elect on a victory few saw coming. Nine days after Trump’s shock win, there was Abe on Nov. 17, reassuring a fearful world not to worry, he’d be a “trustworthy leader.”

From the start, Prime Minister Abe’s visit was a comedy of errors. Japanese diplomats are obsessive sticklers for protocol. Trump’s people were slow to set a time or any choreography for his first post-election tête-à-tête with a world leader. Japanese officialdom was livid that Trump brought his daughter Ivanka along. 

The real error, though, was Abe’s effort to normalize a U.S. leader who’s since taken a wrecking ball to the global economic order Abe’s team hoped to preserve 44 months ago. That order gives Japan a seat at the Group of Seven nations table not accorded to Beijing. And at a cost to Tokyo, so far, of more than $2.2 trillion and counting.

The amount referenced here is how much Abe’s government is having to spend to revive the economy. To be fair, Japan would be pumping stimulus into the economy even if Trump’s White House hadn’t so spectacularly botched its Covid-19 response. But the magnitude of the spending, about 40% of gross domestic product, is a direct result of Trump’s failure and the global financial repercussions.

For a time, Tokyo-based pundits applauded Abe’s Trump wager. It seemed like a stroke of realpolitik genius. As Trump railed at China and threatened tariffs, pundits believed, Japan would be spared. Yet once Trump began slapping taxes on steel and aluminum, Japan did not score an exception. Trump’s China tariffs, meantime, disrupted the supply chains on which Japan Inc. relies.

Trump’s occasional Twitter attacks on a yen he views as too weak panicked Abe’s Ministry of Finance. He’s cozying up to North Korea’s Kim Jong Un, ignoring Tokyo’s security interests, made for sleepless nights at Abe’s Ministry of Foreign Affairs. News that Trump cajoled Abe into nominating Trump for a Nobel Peace Prize humiliated Japan’s diplomatic corps.

More recent news that Trump cozied up to China’s Xi Jinping to help win reelection won’t sit well with Abe’s fellow nationalists. An even worse discovery from John Bolton’s new book The Room Where It Happened is that Trump tried to shake down Abe for an additional $8 billion annually for hosting U.S. troops.

The former national security advisor detailed times when Trump would rail about Imperial Japan’s attack on Pearl Harbor and suggest Abe’s father was a failed kamikaze pilot. And how Trump dispatched Abe to negotiate with Iran in June 2019 as a lark.

But the real buyer’s remorse Japan is feeling concerns an economy losing altitude, and fast. In this sense, Trump has been costing Abe all along. The trade war sent powerful headwinds Japan’s way, steadily chipping away at its best recovery since the 1980s bubble economy imploded.

Granted, Abe made big mistakes of his own. One: not working harder since 2012 to implement big structural reforms to labor markets or Japan Inc.’s patriarchal mindset. He failed to cut red tape, catalyze a startup boom or liberalize immigration in ways that would’ve positioned Japan to woo multinational companies tempted to flee Hong Kong as China clamps down on the city. Another: hiking sales taxes to 10% last October, a move that contributed to a 7.3% GDP contraction.

The real problem, though, is a U.S. veering off the rails. With coronavirus cases approaching 3.5 million, it’s clear Trump’s White House has given up on fighting the pandemic. The economic fallout to come will reverberate around the globe, sapping growth in China, Japan, South Korea, Southeast Asia and beyond. So might any steps Trump takes to intensify his trade war between now and the Nov. 3 election to cheer his base.
If Trump cared about pal Abe or other allies, he would announce an immediate trade war ceasefire. He’d get on the phone with G7 and Group of 20 leaders to devise a collective assault on Covid-19 and the global fallout on growth and incomes.

Japan is directly in harm’s way as a leader Abe vouched for hobbles the global economy. The trillions of dollars of stimulus Washington threw at Covid-19 is already wearing off. Even if Democratic rival Joe Biden defeats Trump 110 days from now, it’ll take time for his White House to repair the damage done to growth and global economic relationships.

The answer for Abe is jumpstarting reforms to boost Japanese competitiveness, increase innovation and generate growth organically. Two decades after its economy imploded, Japan is becoming more and more reliant on zero interest rates and ginormous spending packages. Yet with approval ratings below 40%, Abe might not have the political capital to get much done.

There’s also a big question of what Trump might do between now and Nov. 3. As he seeks to cheer his base, might Trump slap new taxes on China? Will he make good on threats of 25% tariffs on cars and auto parts, savaging supply chains anew? Trump could weaken the dollar, further ruining Japan Inc.’s year.

And have Japanese wondering what, oh what, their leader was thinking when he scurried to Trump Tower 1,337 days ago to do Trump’s bidding. The bill for that blunder, $2.2 trillion and counting, will be one for the record books.

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