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Abe must be frank with his pal Trump

Without forthright talk, Shinzo-Donald bromance risks turning into a big mistake

| Japan

It is a tantalizing geopolitical debate: Who misjudged their adversary more -- Donald Trump or Xi Jinping?

The U.S. president could well be the bigger dupe, convinced (wrongly) that China's leader would panic over tariffs. Xi, too, erred in thinking Trump was just bluffing. For now, both are wrong, as Xi retaliates and Trump ups the ante -- $250 billion, and counting.

But it could yet be that both will be outclassed in the Miscalculation Olympics by a less fancied performer, Shinzo Abe.

Japan's prime minister is currently basking in a big victory, having captured nearly 70% of the votes in Thursday's ruling Liberal Democratic Party election.

But a home win counts for little in the global game. The real contest is yet to come as Trump prepares to confront Abe over his signature project: reflating Asia's second-biggest economy.

No world leader embraced Trump more enthusiastically -- or expeditiously. Abe scrambled to Trump Tower nine days after Trump's shock election in November 2016 to essentially kiss the ring.

Abe's team did its best to ignore the disrespect Trump displayed in bringing his kids to the powwow. It has since pretended nonchalance as Trump pulled out of the Trans-Pacific Partnership, reneged on the Paris climate deal, and cozied up to Kim Jong Un in ways that hurt Tokyo's interests. Abe has tried to look the other way as Trump tosses commercial grenades at Asian supply chains that are Japan Inc's lifeblood.

This cognitive dissonance will be harder to sustain as Abe embarks on his third three-year term. Abe's ambition to become Japan's longest-serving leader is on a collision course with his White House bro.

Basically, there are three doors Abe can choose to enter. Door 1: remain obsequious to the "America First" president, a bad look for a proud prime minister angling to make Japan great again. Door 2: push back, letting Trump know friendship has its limits. Door 3: plot a middle course, tolerating Trump's imperious policy outbursts while quietly seeking shelter elsewhere.

Abe seems to be pursuing this third track. Odds are, he will continue reaching out to the European Union, with which Tokyo recently concluded a giant free-trade deal. Abe is working with Xi and South Korea's Moon Jae-in to deepen trilateral cooperation. Tokyo is ramping up investment in a booming Southeast Asia, while deepening links with India.

But Door 2 holds more promise for a place in posterity. Thanks to a domestic opposition in disarray as well as fears about China's military buildup and North Korea's missiles, voters went along with Abe's toadying to Trump. That is backfiring spectacularly and warrants a major rethink.

Trump's TPP sabotage was a bitter betrayal for Abe, who spent years selling farmers, fishermen and the bureaucracy on the need to curb China's rise.

But that is just a preview to the epic trade brawl to come. As the Trump storm intensifies, it threatens Japan's best opportunity in decades to defeat deflation once and for all.

Abe deserves considerable blame for slow-walking structural upgrades. If he had acted boldly to loosen labor markets, catalyze a startup boom, narrow gender-pay gaps and sideline a change-averse bureaucracy, Japan's weak-growth economy would be far less vulnerable. Now, the main driver of Abenomics, the Bank of Japan, is warning of rough economic waters to come.

"The multilateral trading system is complex," Gov. Haruhiko Kuroda said on Sept. 20. "Not only the North American Free Trade Agreement, or trade between the U.S. and China, but the effect on the whole world economy must be watched."

Sure, the BOJ could toss additional stimulus at the economy. But without assertive deregulation, the BOJ would just be pumping up stock and real estate prices in ways that enrich Japan's 1%, not its average households.

It is when the tide goes out, as Warren Buffett famously said, that we see who has been swimming naked. Trump's trade war is hastening that tide shift, exposing a whole lot of skinny dipping in Tokyo. Japan's longest recovery since the 1980s was fueled more by global demand and a weak yen than domestic retooling. That poses a choice for Kuroda: go further into the monetary unknown or stand its ground. So far, it is the latter.

Abe's dilemma is tantalizing. If any world leader has earned the right to tell Trump some inconvenient truths, it is Japan's. One, of course, is how Trump's tariffs are slamming business sentiment in Tokyo, Seoul and Singapore just as much as Shanghai. Another: how Trump could be consigning Japan to another decade of underperformance. He may not care about that, but he will care that Japanese households have less confidence to buy new iPhones, Nike shoes, Harley-Davidson motorcycles and Hollywood movie tickets.

Friends, in theory, tell each other the truth. Abe should educate Trump on how he is buttressing Xi's plan to raise China's soft power, dominate global tech by 2025 and increase the yuan's use in global trade. Abe's friendship could torpedo his cabinet's support rates, currently in the low 40s.

Abe should also explain that all this would give him less clout to revise the pacifist constitution, reducing the odds Tokyo might be able to fulfill Trump's demands for Japan to take on more of the military burden and buy billions of dollars of extra U.S. hardware. Trump should realize that as constitutional reform is controversial, his friend Shinzo needs all the help he can get.

Abe's original popular mandate was reorienting Japan to compete in the Chinese age. Though some Abenomics upgrades might reduce job security, for example, many voters seem willing to go along so long as Japan rediscovers its economic mojo. Shifting popular opinion, for example, helped Abe join TPP.

At least publicly, Abe is downplaying how much his pal in Washington could set back Japan's economy. "The biggest goal of our macroeconomic policy has been fulfilled as a result of measures taken by the government and the BOJ to achieve 2% inflation," Abe told reporters, "In that sense, we have succeeded in hitting the arrows" of Abenomics.

Really? Inflation is, at best, halfway to that target. Executives are generally rewarding staff with the odd bonus, not significant salary bumps. That is because only two of Abe's arrows were reasonably deployed -- monetary easing and fiscal loosening. The third and most vital arrow -- deregulation -- remains more of a toy dart.

Abe's capacity to turn that dart back into a fully armed arrow is being squeezed by the man Abe spent considerable political capital enabling. As the fallout from that miscalculation boomerangs, Abe's third term could yet be dominated by regretting his choice.

To avoid that outcome, Abe should cash in the chips he has amassed in the White House over 22 months of supporting Trump's antics. At the very least, he must win exemptions from steel and aluminum tariffs. He should try to talk Trump out of his proposed 25% levy on imports of cars and auto parts.

Friends get to share uncomfortable truths. It is high time Abe schooled pal Trump about how Washington trade war could hurt allies more than enemies.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.

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