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Peter Tasker: Trump-Abe summit reboots the US-Japan relationship

Japan's leader may need to offer more reciprocity on economy, security

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U.S. President Donald Trump, right, and Japanese Prime Minister Shinzo Abe peer at each other at a joint news conference in Washington on Feb. 10.   © Reuters

U.S. President Donald Trump provokes strong reactions. Media commentary has been mostly hostile, and anti-Trump demonstrations have become commonplace in the U.S. and elsewhere. The financial markets, on the other hand, have given him an enthusiastic welcome.

In Trump's first month in office, the Dow Jones index breached the 20,000 level for the first time, and the MSCI World Index continues to set new highs. Meanwhile, the gold/copper ratio, an indicator of financial stress and economic debility, has fallen sharply from the elevated levels of mid-2016. If the world is on the brink of a return to the 1930s, as some excitable commentators have claimed, investors do not appear to have noticed.

Trump's "America first" project will stand or fall on the performance of the domestic economy, with complex issues such as tax reform and infrastructure investment being crucial to success. Cultivating warm relations with foreign countries will not come high on the president's to-do list, as the leaders of trading partners including Germany, Mexico and Australia have already learned.

There are two exceptions: the U.K. and Japan. British Prime Minister Theresa May was the first foreign leader to make an official visit to the new occupant of the White House. As Britain extricates itself from the EU, closer ties with the U.S., probably marked with a bilateral trade deal, are necessary and mutually beneficial. While May's visit was brisk and businesslike, Trump described his recent encounter with Japanese Prime Minister Shinzo Abe as having "very, very good chemistry." Indeed, Abe was treated to hugs, multiple dinner dates and a sleepover at Trump's luxury resort in Florida.

The round of golf the two men played there was highly symbolic, echoing the close relationship enjoyed by two of their predecessors in the 1980s, Ronald Reagan and Yasuhiro Nakasone. "Ron and Yasu" hit the links together at a time of escalating trade friction marked by sensational incidents, such as the murder of a Chinese-American man who was mistaken for a Japanese by two unemployed auto workers. The campaign rhetoric of Walter Mondale, Reagan's opponent in the 1984 election, also sounds eerily familiar. "We have to start running up the American flag," he said. "And to turn around, fight and make America number one again in international commerce so that American jobs are filled in this country."

In the 1980s, Japan responded to U.S. protectionist pressure by agreeing to "voluntary" quotas on auto exports, building factories in the U.S. and accepting a massive revaluation of the yen as proposed in the Plaza and Louvre accords. With the Cold War still raging, the strategic logic of the U.S.-Japan relationship overwhelmed transient economic and financial issues. Ironically, Mondale went on to become a respected ambassador to Tokyo in the 1990s.

CORNERSTONE OF PEACE Today there is no Soviet Union to glue the alliance together, and Trump, unlike Reagan, is no free-trader. Even so, the two countries have enough congruence of interest for the relationship to thrive under the Trump administration. Trump himself has recognized that -- not least by backtracking on his campaign criticism of the U.S.-Japan Security Treaty, which he now describes as "the cornerstone of peace and stability in the Pacific region."

Defense Secretary Jim Mattis had already traveled to Tokyo to state that the U.S. would stand "shoulder to shoulder" with Japan and pledged to defend the Senkaku Islands, which are claimed by China. North Korea is now a common threat as it seeks intercontinental missile capability. Its latest missile test will have the effect of driving Japan and the U.S. together.

On China, Trump has long positioned himself as a hawk, and almost by definition that means supporting and cooperating with Japan. As in the 1980s, the security relationship will mold the economic relationship. Yet China is not an existential threat to the U.S., nor an ideological foe in the sense that the Soviet Union was.

Some influential geopolitical thinkers, such as Henry Kissinger, have long advocated accommodation with China on the grounds that the risks of conflict between an existing superpower and a rising challenger -- the so-called "Thucydides trap" -- are simply too great. It is not beyond the bounds of imagination that Trump himself might make some kind of bargain with Beijing, for example in relation to North Korea. The 21st-century reality, well understood by both Trump and Abe, is that their security treaty now means more to Japan than to the U.S. That is why Abe rushed to New York the week after the election to visit Trump Tower.

TWO-WAY STREET "This is not 30 years ago. It's got to be a two-way street." Those were Trump's remarks about the alliances with Japan and South Korea during the campaign. It is hard to believe that the man known for the "art of the deal" has forgotten that salient point. Over time, Abe will have to deliver more reciprocity on both the economic and security fronts.

Japan could probably reformat some of its commitments for the now-defunct Trans-Pacific Partnership as the basis for a bilateral trade agreement with the U.S. Nudging the behavior of Japanese companies could be helpful, too. It would be no surprise if Japanese automakers with Mexican operations started shifting production to plants in the U.S., or if the Franco-German Airbus found it even more difficult to make new sales in Japan, to the benefit of America's Boeing. Contributing to U.S. infrastructure programs has already been mentioned. If Trump wants a bullet train system, he is unlikely to choose the Chinese version, as the Indonesians did.

The best sweetener of all, though, would be buoyant Japanese domestic demand. To help achieve this, Abe would need to ignore the fiscal hawks and juice up infrastructure and other spending at home. With the Bank of Japan now owning 40% of Japanese bonds and market participants complaining that there are not enough left to buy, the obvious solution is to issue more.

A more active role in regional security is also likely to be part of the mix, including increased cooperation with other countries such as India and Australia. Abe's long-term political project includes revising Japan's outmoded pacifist constitution in order to gain strategic flexibility. Progress in that direction would help create the two-way street that Trump mentioned, as well as insuring Japan against any future rupture in the alliance.

All this presents a daunting challenge. Abe is not noted as an especially skilled golfer, but if he can work the mercurial Donald Trump to Japan's advantage, it would be the diplomatic equivalent of a hole-in-one.

Peter Tasker is an analyst at Tokyo-based Arcus Research.

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