Outlook for Asian Economies 2017, Part 2
Jan. 11, 2017
Business anchor Yuko Fukushima traveled to New York, where she talked with experts about the prospects for the economies in Asia this year, for a 2-part series. In the second installment, she speaks with an expert on the Japanese economy about the impact Trump's policies will have on Japan.
US President-elect Donald Trump has a said he intends to implement big tax cuts for corporations and individuals. He plans to invest heavily in infrastructure projects, spending a total of 1 trillion dollars over 10 years.
He has also said the U.S. will not ratify the Trans-pacific Partnership Agreement, a 12-country free-trade agreement that includes Japan and the United States. The 2 countries represent 80% of GDP among member countries. If the pact is realized, the TPP would make up roughly 40 percent of the world's GDP.
Trump has also asserted that he wants to renegotiate the terms of the North American Free Trade Agreement.
Yuko Fukushima spoke with Hugh Patrick, an American researcher on the Japanese economy and a professor at Columbia University, about these and other economic issues.
Columbia University boasts one of the best business schools in the world. The Center on Japanese Economy and Business was established there in 1986, and Patrick has been head of the center since its foundation.
He is seen as the leading researcher on the Japanese economy in the United States. Officials from the Japanese government and the Bank of Japan look to him for advice.
Donald Trump's victory in the presidential election came as a big surprise to Patrick, who has been researching Japan's economics and politics for more than 30 years.
Fukushima: What are your thoughts on Mr. Trump becoming your president?
Patrick: We don’t really know, first of all, what Trump really wants. That’s the most important thing. I don’t think he expects to get everything that he initially said, and he hasn’t made clear what his priorities are. That’s sort of part of his sense of how you bargain, and how you deal, and how you make policy. That works well in business. It works well in a narrow sense in politics too, but you have to have a broader sense of what is an American national interest. So I think we’re in this period of, for us really, I'm not going to use the word terrible uncertainty, but a very difficult, uncertain time.
Fukushima: Mr. Trump is proposing big tax cuts and big infrastructure spending for the U.S. economy, and many have high expectations now that the U.S. economy will expand because of those policies. What kind of implication does that have on the Japanese economy?
Patrick: The U.S. economy will grow more rapidly and the infrastructure activities, this will benefit Japan. It will benefit the whole world and the economy, the global economy, will grow somewhat better. Under those circumstances, Japanese exports, not only to the United States but to the other parts of the world, will increase, and also probably foreign investment opportunities.
As investors cheer over Trump's short-term plans to expand the economy, many are worried about his comments on trade. The 12 member nations of the TPP signed the pact in February last year.
In Japan, lawmakers voted to ratify the free trade agreement in December. The government says the TPP would contribute about 120 billion dollars to the country's GDP and create 800 thousand jobs. Prime Minister Shinzo Abe views the TPP as one of the main pillars of his growth strategy.
Even though Trump will most likely scrap the TPP, Patrick remains optimistic about the future of the trade pact.
Patrick: Mr. Abe has said that without the United States, TPP is meaningless. I don’t think that’s true. I think, if he thinks it’s true, you could have an eleven nation TPP led by Japan. And that would benefit those nations and would benefit Japan. And it would carry out his own domestic process, which is difficult, of trying to restructure agriculture.
Fukushima: So you think it’s not much of a blow to the Japanese economy and its growth?
Patrick: No, I don’t, I don’t think so. I don’t think that has a big effect on the Japanese economy. In a sense, TPP probably was not as major an economic, having an economic effect, as it came to become a symbol of American involvement in policy in Asia. Because basically tariffs are low already and trade is good already and TPP eliminated a lot of more tariffs. But probably as a whole, if you look at it sort of a broader context, it's not that big.
And then I think, alright well, let’s put this in broader context. Is the US-Japan relationship going to get tighter or less tight? And I think it’s going to get tighter because of China.
Fukushima: What do you mean by that?
Patrick: Well, I think the US-China relationship is going to be complex and difficult, and that will mean that in that sort of complex game, Japan will be viewed as an ally by Trump and he will want to make sure that he keeps his ally happy.
Fukushima: How will that impact the Japanese economy or Japan-US economic relations?
Patrick: Well, I think that probably when it comes down to the reality of imposing tariffs against Japanese goods wherever they’re produced, that probably will not in fact be implemented as a policy objective, much less being able to carry it out in practice.
Fukushima: What would the worst case scenario for Japan economically?
Patrick: Oh, that the United States becomes isolationist. It would make manufactured imports more expensive by higher tariffs, by pursuing unilateral policies. In a more fundamental sense, it means that American leadership in the world would no longer be secure and good as it has been for the past 70 years. And so I think that would be a huge shock for Japan and every other country including the United States.
Fukushima: What do you think the Japanese economy needs in the future?
Patrick: I think there's a lack of confidence in the future, and part of it has to do with domestic uncertainties, part of it the global environment. I think they had this great, great growth era up until 1990 or so, and it was doing very well, and then it sort of stopped. You had 20 years of, of essentially no growth and deflation and uncertainty, and increasing difficulty in finding good jobs. And I think that sort of created a very, rather pessimistic mindset about the future, and it’s how to change that to a more confident sense about the future that I think is the biggest, biggest challenge for Japan.
Yuko Fukushima joins anchors Sho Beppu and Aki Shibuya in the studio.
Beppu: Does Professor Patrick think the Japanese government should reconsider Abenomics when Trump becomes president?
Fukushima: Patrick says if the government's policy of propping up the economy is hitting a wall, the reasons lie in domestic factors, not external, as trade makes up only about 20 percent of Japan's GDP. The biggest factor driving Japan's economy is consumption, making up about 60 percent of GDP.
There are critics of Abenomics. Some say the central bank's ultra-easy monetary policy is not effective anymore because inflation is not nearing the central bank's target. Others say we're not seeing progress in structural reform. But Patrick maintains that Abenomics is on track.
He says the challenge for the Japanese economy is "to break the deflationary set of expectations" of the people. He says households have been "quite conservative about spending money" and that "people are saving more since the beginning of Abenomics." He suggests "people don't have confidence in the future."
Beppu: Some people might say that we know we need to change our deflationary mind sets, but how?
Fukushima: Yes, that's exactly what I asked him but he didn't seem to have a clear answer. What I felt from the interview was that no one has a clear answer. Japan is the first major country to face a declining population and deflation, and it's losing confidence. We need to think hard to come up with a solution to get the country's economy moving again.