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How Abe can make TPP great again

Japan can expand the club, save free trade and promote economic growth

Japanese Prime Minister Shinzo Abe has been busily working to counter protectionism led by U.S. President Donald Trump.   © Reuters

Rivals underestimate Shinzo Abe at their peril. Just ask Japan's enfeebled opposition parties, left wondering how Abe rebounded in 2012 from a rather dreadful first turn as prime minister in 2006-2007. Or how he has survived scandal after scandal during a second term that is now nearly six years long and counting.

Yet history may show the biggest underestimater is Donald Trump.

Nowhere is that more apparent than in Abe's trumping of the U.S. leader on the Trans-Pacific Partnership. And Trump has yet to catch on. The "Art of the Deal" president crowed, back in January 2017, that he had killed history's biggest trade deal. Since then, Trump has tried essentially to blackmail trading partners into bilateral pacts.

But Abe has responded to the failure of the original TPP by busily working on Plans B and C, and a Plan D that could stand as a bulwark against the protectionism Trump represents.

Plan B was keeping TPP alive with the 10 other remaining members. TPP without Japan, Asia's third-biggest economy, did not stand a chance. Initially, when Trump reneged, Abe called TPP "meaningless." He wisely reconsidered, deciding Abenomics -- his domestic revival plan -- needed a big reform win. Importing competition is precisely what Japan's rigid industrial system needs. Last week, Australia joined Japan, Mexico and Singapore in ratifying TPP.

Next, Plan C: a comprehensive free-trade deal with the European Union, eliminating levies that cost Japan and 28 European economies about $1.2 billion a year.

Abe's crowning triumph would be Plan D: extending TPP in ways that recreate the $19 trillion U.S. economy in the aggregate. South Korea, Indonesia, the Philippines and India are all worthy targets. Here, Abe can play a catalyzing role, adding life to Abenomics and making Japan's global clout great again.

Abe's acting skills will be put to the test. Trump wants Abe all-in on a bilateral deal. It does not take a vivid imagination to conjure the explosive indignation of the Tweeter-in-chief should he sense Abe, so malleable to date, is not his viceroy in Asia.

Balancing acts aside, Abe can start by lobbying South Korea and Indonesia to enter the TPP orbit. At the moment, Korean President Moon Jae-in and Indonesian leader Joko Widodo may be more open to persuasion than many global investors think.

Moon took office in May 2017 pledging an ambitious structural upgrade scheme to increase innovation and competitiveness. Mostly, that means curbing the monopolistic ways of family-owned conglomerates and creating more space for startups. Progress to date has been modest, at best. Few reforms would jolt Korea Inc. more than TPP's attack on public subsidies, tariffs and non-tariff barriers.

For Seoul, TPP would mean sizable gains in market opening, increased bargaining powering with Washington and Tokyo and clearer access to what Bank of Japan Gov. Haruhiko Kuroda calls Asia's free-trade "noodle bowl." What is more, it would add legitimacy to Seoul's ambitions to become a financial hub.

Widodo's Indonesia is badly in need of a similar shock. TPP would be akin to an economic Trojan horse. Once Indonesia's walls, politicians, companies and the rent-seeking middlemen stymying change would have little choice but to embrace international standards of accountability and efficiency.

What both have in common is trouble with Xi Jinping's China. Moon's economy is still shaking off mainland boycotts related to Seoul hosting U.S. missile-defense systems. Widodo, who faces re-election next year, has been pushing back against Beijing's bullying ways in the South China Sea. Officials in Jakarta grumble about the labyrinthine strings attached to Beijing's aid or market access in China. Abe has been working to counter China's dominance in Southeast Asia. Here is his chance.

India would be a serious coup. Asia's No. 3 economy is home to one of the world's most tantalizing middle-class development stories. Given India's demographics, it is no surprise that Japanese icons from Mizuho Securities to Mitsubishi Corp., SoftBank and the Japan International Cooperation Agency are rapidly upping their bets on Narendra Modi's reform push. Prime Minister Modi, in turn, could harness TPP as a means to open hyper-protected sectors like retail and education.

As of now, the reworked TPP amounts to $10 trillion of commercial firepower -- or 15% of global trade. In the Trump era, few things matter more than size and strength. With Korea, India and Indonesia, TPP's gross domestic product tally would jump by $4.9 trillion annually.

The bigger TPP's ambitions, the greater the odds members can push back against Trump's retrograde policies and entice other new members. Indonesia, Sri Lanka and Thailand have expressed interest in TPP. So has Colombia and even Brexit-bound Britain. So far, India, Korea and the Philippines have been reluctant to unnerve domestic vested interests.

Yet this, inevitably, leads to a discussion about pulling China into the fold. Hardly an insane thought. Barack Obama himself, Trump's predecessor who launched TPP, considered the impact of including the most populous nation.

At its core, TPP is currently a counterweight to Chinese dominance, a strength-in-numbers line in the sand against Beijing's predatory trade methods.

But there is logic to lassoing China in eventually. Beijing can run circles around World Trade Organization's rules. TPP, by contrast, aims to impose standards Xi's Communist Party abhor. They included forcing Beijing to honor intellectual property rights at the root of so many global disputes.

Simple, this is not. The logistic and legal challenges of Chinese membership would be exhausting. Abe's nationalist bone fides also would be questioned at home.

Still, what better way to call Trump's bluff than even just a whiff of Beijing joining a trade deal he left to undermine China? Or sending out feelers to the EU to gauge interest in membership. It is hard to find a better way to troll Trumpism.

It could end Abe's Trump bromance. But then, it is hard to argue Japan has secured much from Abe's obsequiousness toward a president who cares more about political theater than logic. Growing the TPP pie would buttress Tokyo's clout as an economic leader -- and give Abenomics a greater shot at success.

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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