By Matt Goodman & Mike Green
Since the first merchant ship of the new American republic set sail from New York for Canton in 1784, trade has been at the heart of U.S. strategy in the Asia-Pacific. Deepening economic exchange with the world’s most dynamic region has not only promoted American prosperity; it has also been an essential underpinning of the U.S. military and diplomatic presence in the region.
This is why President Bush launched the Trans-Pacific Partnership (TPP) and why the Obama administration is redoubling its efforts to conclude a TPP agreement by the end of this year as a central part of its “pivot” to Asia. And it is why the administration should welcome Japan, Asia’s second-largest economy and America’s leading ally in the region, into TPP following Tokyo’s historic decision to seek entry into the talks.
Joining TPP is the most consequential element of Prime Minister Shinzo Abe’s three-part strategy to revive the Japanese economy through aggressive monetary easing, fiscal stimulus, and structural reform (collectively dubbed “Abenomics”). To meet TPP’s high ambitions for market opening and 21st century rules of the road for trade and investment, Japan will need to undertake politically sensitive reforms of its agriculture and services sectors, labor markets, and regulatory practices.
Those of us who have been following Japan for the past 30 years look at the structural reform “arrow” of Abenomics with a skeptical eye. So many plans and slogans to overhaul the Japanese economy have come and gone: Yasuhiro Nakasone’s campaign in the mid-1980s to “join hands with the world through imports”; the Miyazawa Plan of the early 1990s, named for another former prime minister, to make Japan a “lifestyle superpower”; the aborted efforts of Japan’s last leader, Yoshihiko Noda, to join TPP in late 2011. Only Junichiro Koizumi’s financial and postal reforms of a decade ago stand out as meaningful.
But this time the stars have aligned to make the prospects for lasting reform real. The economic struggles of the past two decades have made Japanese companies big and small afraid of falling behind in global competition, and business groups have come out strongly in support of TPP entry. Opinion polls show that a majority of Japanese voters support TPP as well. And, following an earlier stint in office during which he paid little attention to the economy, Abe has discovered that good economic policy can be good politics: largely on the back of Abenomics, his approval rating has rocketed above 70 percent.
To be sure, Abe faces outspoken opposition to his structural reform plans within his own Liberal Democratic Party (LDP). Japan’s agriculture lobby, an important supporter of the LDP, remains a formidable opponent of reform. The rural vote will be particularly important as Abe seeks to regain an LDP coalition majority in Upper House elections in July—a victory that could cement his hold on power for several years.
In campaigning for office last fall, Abe repeatedly promised not to join TPP if the price was eliminating Japan’s high agriculture tariffs upon entry—a clever formulation if he decided to push ahead once in office, since no country goes into trade negotiations giving away the store. In a tortuously crafted statement after his summit with President Obama late last month, Abe got the assurances he needed. In exchange, he acknowledged that everything would be on the table for negotiation and agreed to address U.S. concerns about Japan’s automobile and insurance markets.
The decision to push to join TPP marks a major milestone for Japan. It should be a catalyst for the structural reforms the country so badly needs to raise productivity and growth in the face of a declining workforce. Japan’s urban consumers may no longer need to pay eight times the world price for rice to protect a dwindling farm population. The market opening and strengthened rules under a TPP agreement will give Japanese exporters new opportunities in growing Asia-Pacific markets. Estimates are that TPP entry could raise Japanese GDP by 0.5 percent per annum.
A stronger Japan would bring significant strategic benefits to both Japan and the United States. Today, Tokyo is the second largest contributor to the U.N. system and international financial institutions like the World Bank, and the most generous supporter of the U.S. forward military presence. Moreover, as large emerging countries like China and India insist on greater voice in global governance, Tokyo and Washington share a strong interest in updating and upholding the system of rules that underpins the international economy. TPP is the most serious endeavor underway worldwide to do this.
From a U.S. perspective, the practical and political challenges of bringing Japan into TPP are considerable. Adding a large and complex country like Japan to the negotiating table at this late date could slow the progress of the talks. Moreover, there remain pockets of strong resistance to Japanese entry, notably in the U.S. automobile sector. The substantive basis for this opposition is not entirely clear, nor does it make sense to keep Japan out of the talks if there is an opportunity to change its policies. Indeed, polls show that a majority of Americans trust Japan as a trading partner. But the political challenge is undeniable. The Obama administration needs to make the case domestically, and Japan needs to help.
Without Japan in TPP, the Obama administration’s “pivot” to Asia and “Abenomics” would both be substantially diminished. With so much at stake and relatively few areas of actual disagreement in the way, it is incumbent on both leaders to seize this historic opportunity.
Matthew P. Goodman is senior vice president and William E. Simon Chair in Political Economy at CSIS, with particular emphasis on Northeast Asia.