Deputy Prime Minister Taro Aso and U.S. Vice President Mike Pence are expected to tackle a raft of topics when the two nations meet Tuesday for the start of their first high-level economic dialogue since the inauguration of U.S. President Donald Trump in January.
But in what is to be the first in a series of meetings, speculation is rife on the Japanese side that the talks will be a mere formality and yield little in the way of concrete results.
Moreover, the fact that the U.S. government is still in a kind of transition process and widely seen as unprepared for the talks, analysts say, presents an opportunity for Tokyo to gain the upper hand by steering the conversation away from two politically sensitive topics it would rather not discuss in detail: currencies and trade deficits tied to automobiles.
“What matters most is the very fact that we will be able to kick off such an economic dialogue at all” under a new U.S. administration, a senior Foreign Ministry official said, speaking on condition of anonymity.
“We doubt anything drastic will come out of the first meeting.”
Although symbolic, the dialogue will be overseen by Aso and Pence in a personnel arrangement that experts say is unprecedentedly high-level for such bilateral talks.
Aso’s reputation as a hard-nosed negotiator aside, experts predict Washington’s apparent unpreparedness for the talks may work to Japan’s advantage.
While Tokyo has spent several weeks meticulously strategizing, such dedication is said to be missing from the Trump administration, which has busied itself completing a major personnel reshuffle that requires roughly 4,000 positions to be filled.
Even Robert Lighthizer, Trump’s nominee for U.S. Trade Representative — a key post for such an economic dialogue — still awaits Senate confirmation.
“We’re fully prepared for the Aso-Pence meeting, but the American side has so far been very slow in coordinating its team,” a high-ranking Foreign Ministry official in charge of economic matters observed in late March, adding that Tokyo, for its part, views the dialogue as “essential” to the Japan-U.S. economic relationship.
Taking advantage of the situation, “Japan should aim to take the lead in the talks, so it’s important to be aggressive from the beginning,” Hideki Matsumura, a senior economist at the Japan Research Institute, said.
This is because there are topics that Japan would not want to put on the table. “If you ask me what would be the most critical thing to watch from the first session, I would say the currency issue,” he said.
Ever since Prime Minister Shinzo Abe’s second stint as prime minister began in December 2012, Japan has been committed to an ultraloose monetary policy that has devalued the yen against major currencies, boosted export-driven firms’ profits and pushed up the Nikkei average.
The yen’s value against the dollar dropped nearly 30 percent at one point, but the U.S. government has appeared to be more cautious about the currency fluctuation recently.
Last year, Washington put Japan on the currency monitoring list, while the Trump administration criticized Tokyo for devaluing the yen. Moreover, Trump told The Wall Street Journal last week that the dollar is “getting too strong” and the yen’s value has been on a rising trend since then.
“The impact caused by the currencies on the Japanese economy is quite big,” said Matsumura.
Spikes in the yen’s value lowers the price of imported goods, which is seen as undesirable as Japan tries to claw its way out of deflation. It can also drive down stocks, eroding consumer confidence.
Matsumura said Japan needed to avoid further pressure from the U.S. on the currency issue.
Another possible flash point is discussion about trade deficits. Trump has declared redressing massive trade deficits the U.S. incurs with economic powers such as China and Japan as one of his top priorities.
In a recent meeting with Chinese President Xi Jinping, Trump struck what has been dubbed a “100-day plan” for trade talks, with an eye to slashing the $347 billion trade surplus generated by China as of last year. Japan is ranked as the second-largest contributor to the U.S. trade deficit, accounting for $68.9 billion, according to the data released by the U.S. Department of Commerce.
The strong determination displayed by Trump to rectify what he claims to be an unfair trade deal with China, former trade ministry bureaucrat Masahiko Hosokawa said, suggests it is “highly likely” that Washington will similarly pressure Tokyo into taking steps to trim the deficit during the impending dialogue.
Among sectors most susceptible to U.S. criticism is auto manufacturing.
Although Japan scrapped all tariffs on imported vehicles in 1978, the alleged insularity of the nation’s automobile market has long been a recurring source of controversy between Tokyo and Washington. The U.S. has blamed its vehicles’ doggedly lackluster performance in Japan’s market on a variety of “nontariff barriers,” such as unique standards, testing protocols and financial incentives especially on kei minivehicles, which are popular in the Japanese market and whose production is dominated by Japanese manufacturers.
Yet Abe is adamant the root cause of the problem lies on the U.S. side.
“American makers don’t even participate in our local motor show. Nor do they advertise their products on TV and in newspapers here. They haven’t changed their left-hand drive yet. All those efforts have been made by German makers, for example,” Abe told the Lower House Budget Committee in February.
In fact, according to the Japan Automobile Importers Association, Mercedes-Benz topped the list of new vehicle imports in fiscal 2016 that ended March 31, numbering 67,495, or 19.46 percent of the total. Other prominent German brands followed, including BMW at 50,828 and VW at 47,726. The best-performing American marque was Jeep, ranked way lower on the list at ninth, with a total of 9,745 vehicles.
Former trade ministry official Hosokawa agrees. “You could say the Japanese market is exclusive if all imported vehicles are doing badly,” Hosokawa said. “But that’s not the case — we’ve actually seen some rise in European cars. The current situation is clearly due to the lack of a proper marketing effort on the part of American companies.”
The extent to which Pence is determined to ratchet up his rhetoric against America’s trade deficit with Japan is anybody’s guess. But expectations are high that the former governor of Indiana at least appreciates financial contributions made by Japanese firms to the Midwest state over the years.
Over 280 Japanese businesses operate in Indiana, and between them they have created over 52,000 jobs there, according to data provided by Indiana’s representative office in Japan. The state is also the only one hosting three automotive assembly plants run by Toyota, Honda and Subaru.
“The state of Indiana is thankful to count Japan as our largest Asian trading partner,” Paul Roland, director of the office, said.