WALTER HAMILTON. Rush for the exits

Jan 27, 2017

When Japanese Prime Minister Shinzo Abe earlier this month stood alongside Prime Minister Malcolm Turnbull near The Gap––once Sydney’s favourite suicide spot––they presented themselves as brothers-in-arms for multilateral free trade. How quickly things can change.  

Japanese leaders prefer to schedule visits to Australia around New Year: it offers a nice escape from Tokyo’s winter chills, when the Diet isn’t sitting, and nobody back home is paying much attention. Accordingly, the Japanese news media gave Abe’s visit scant coverage. In contrast, the local media, notably The Australian, splashed the leaders’ meeting over the front page, portraying it as a major reaffirmation of Abe and Turnbull’s solidarity in standing up for multilateral free trade against the loathsome tide of protectionism.

Then Abe went home.

A week later, President Trump formally backed the US out of the Trans-Pacific Partnership (TPP); and, in turn, with a couple of deft slashes of his blade, Abe proceeded to cut Turnbull adrift. The TPP, Abe insisted, was a lame duck without the United States. More than that, he told the Lower House Budget Committee on Thursday that the TPP was not the whole Japanese game-plan: ‘We will, of course, persistent in approaching America about the TPP, but just because we do so doesn’t mean other options aren’t available’.

Immediately following Donald Trump’s election victory, Abe dashed to New York specifically to convince him to change his mind about the TPP. He failed completely. Preparations are well in train for another Abe sortie to meet Trump in Washington early next month. This time, in pursuing ‘other options’, it seems he could bend to the new president’s preference for bilateral deals.

Japan does not have a free trade agreement with the United States. Japanese business leaders are growing alarmed that Trump’s protectionist rhetoric may ignite another bout of ‘Japan-bashing’ as bad as in the 1980s when American autoworkers took sledgehammers to Japanese cars in protest actions. That ‘trade war’ eventually brought about a massive appreciation of the yen, a burden that Japanese exporters have labored under ever since.

While some among the TPP’s group of nations are now entertaining the idea of inviting China to take the seat vacated by the United States, in order to salvage the pact, Japan is definitely not among them. For one thing, Japanese firms compete head to head with Chinese exporters in the crucial American market. For another thing, the Abe government sees China as a dangerous strategic rival that can be credibly deterred only by Japan’s staying close to America.

It seems Abe cannot get to Washington quickly enough––where he’s likely to project an image of a market-opening, reformist Japan to the self-proclaimed businessman-in-chief, while trying to underscore the nexus between economic and defense interests that has been the basis of the postwar US-Japan relationship. He may go even further and offer to be Trump’s policeman on the block in any confrontation with China over free movement through the South China Sea.

If Japan believes a bilateral trade deal with the United States––or at least starting negotiations on one––is its best means of circumventing punishing new tariffs, it will be vulnerable to pressure, and that could rebound on Australia. Make no mistake, corporate Japan is feeling badly spooked. Not only by Trump but also by Brexit, which threatens to leave Japanese firms heavily invested in manufacturing operations in Britain locked out of the European Common Market. Exposed to trade risks on both sides of the Atlantic, Japanese policymakers, you can be sure, will not have their hearts and minds invested in Australia’s fortunes.

Australia does have a Free Trade Agreement (FTA) with the United States that came into effect twelve years ago. Rather ominously, it was modeled on the North America Free Trade Agreement (NAFTA), which Trump has pledged to scrap or modify. Among other things, the FTA provided Australian farmers with additional access to the American market for beef, dairy products and various other agricultural items. Though less than they wanted, it was better than nothing. (The Americans also wanted more, notably in the area of pharmaceuticals. We may not have heard the last of that.)

The United States, meanwhile, competes with Australia exporting beef and other sensitive products into the still heavily protected Japanese farm-goods market. Australia’s Economic Partnership Agreement with Japan, that came into effect two years ago, lowered but did not eliminate barriers to our agricultural products. There is a risk of Japan cutting a deal with the United States that would nullify Australia’s advantage and possibly put our producers at a disadvantage. (Should the latter occur, however, the Japan-Australia agreement provides for an automatic review of access terms for any affected ‘priority agriculture products’.)

These are early days yet, but brinkmanship is a beast that, once unleashed, can move swiftly and recklessly to destroy what higher sentiments and principles have put in place among nations. It is only a few paces backwards for a photo opportunity at The Gap to become a plunge into the unknown.

Walter Hamilton reported from Japan for the ABC for eleven years.

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