The United States And Japan Are Seeking Stronger Economic Ties

Japan and China Economic Ties

Old enemies sometimes make the best new friends. For an older generation it might come as a surprise just how far once bitter enemies have come to depend on one another in a part of the world that’s experiencing dramatic realignment. In Asian markets circumstances are pushing the United States and Japan into a more cooperative economic liaison. It would even be accurate to say that the economic and military situation are pushing the U.S. and Japan into a closer friendship based on mutual need.

To understand the imperative for the U.S. and Japan to forge closer economic ties it’s necessary to examine the broader economic dynamics of the Pacific Rim. The towering shadow that falls over the Asian economy today is China. Once content to remain a relatively passive player, China today is becoming much more willing to flex both military and economic muscle on the world stage.

In recent months China has signed trade and currency agreements with a host of countries including Chile, Peru, Colombia, Belarus, India and Russia. The United States and Japan needed to match those efforts to keep China from locking up entire segments of emerging markets. China has made it clear it is actively seeking trade agreements with other partners, including African nations.

Japan is a key counterweight to China’s growing influence in the region and Japan’s prime minister, Shinzo Abe, was the right person to make it happen. Elected in 2012, Abe implemented a program based on fiscal stimulus, monetary easing and structural reforms, that he calls the “three arrows” of economic recovery. Even though launching into a program of fiscal stimulus during a time of high government debt seems counterintuitive, the program worked to get Japan’s economy moving again.

With Abe at the helm Japan is becoming a more effective partner for the U.S. both economically and militarily.

For Japan it’s China’s aggressive stance toward the South China Sea that is a particular concern as most of Japan’s ship-borne trade must travel through those waters. Added to that is the tension between Japan and China over uninhabited islands in the East China Sea where fighter jets and patrol ships from the two countries routinely shadow one another. In April the U.S. and Japan announced updated guidance for defensive cooperation that allows Japan to take steps beyond the WWII era self-defense limits imposed on Japan’s military, including actively assisting U.S. military assets that come under threat in the region.

China rocked Japan in early June by announcing a free trade agreement with South Korea that removes most tariffs between Asia’s largest and fourth-largest economies, a deal worth more than $253 billion dollars. The China-Korea FTA will give Chinese consumers greater access to luxury goods like cosmetics, fashion, appliance and luxury food products. The agreement is somewhat more alarming in Japan because the Japanese and Korean people just don’t like one another, a point confirmed by recent opinion polls.

The Korean free trade deal comes at a delicate time for relations between Japan and Korea. Even though the Japanese and Korean people don’t particularly like one another, there are still good reasons for them to try and get along. In February a $10 billion dollar currency swap agreement between the two nations expired and diplomatic relationships have stalled. It doesn’t help that the two countries have their own beef about disputed islands. Korean unhappiness with Japan has increased ever since Abe came to power. The Japanese prime minister scores just below Kim Jong Un, the leader of North Korea, in South Korean opinion polls. The latest sticking point stretches back to WWII and South Korea wants an apology from Japan for war crimes. So far Abe has hesitated as the move is politically unpopular at home. Unfortunately, the U.S., Japan and South Korea don’t have the luxury of animosity as long they are mutually threatened by the nuclear and military ambitions of North Korea.

Preventing economic isolation is important for the security of both the United States and Japan. That mutual need is likely the motivation behind President Obama’s support of the Trans-Pacific Partnership, or TPP. The massive trade agreement, which encompasses 12 countries in the region, is important enough to U.S. interests in the Asian-Pacific theater that the president is willing to buck his own party in full-throated support of the deal.

Efforts to sell the TPP to average Americans are being handicapped by the secrecy surrounding the negotiations and details of the trade agreement. Even members of Congress can’t take notes, a cell phone or recording device with them to review details of the negotiations. The secrecy of the negotiations and history of mega-trade agreements not being particularly beneficial to the middle class have left many in America suspicious of the deal.

The best reason for Americans to temper their suspicions of the TPP may be the fact that China is not one of the parties to the agreement. Tariffs and import quotas among the nations involved in discussions are already quite low and, unlike NAFTA, the changes are unlikely to be particularly substantial. Trade agreements can open up markets and make passage between borders easier, but there are still shipping and transportation costs that will remain fixed. For the TPP it’s not quite the same as opening up the border between the U.S. and Mexico.

The nations not included in the TPP may constitute a better reason to support the agreement than those signing on. Indeed, South Korea may have been motivated to ink the side deal with China because it is also not part of the initial TPP agreement. The deal would immediately turn Japan into a hub of commerce for smaller nations across the Pacific Rim and provide an alternative to those countries being locked into having China as their main trading partner. The South Koreans have recently expressed interest in being included in the TPP and are planning a trip to Washington to make that point known.

In the end the president’s support for the TPP may be out of loyalty to Abe, who the president considers a personal friend. What’s certain is that the U.S. and Japan will be forced into a closer military relationship and benefit from closer economic ties. Perhaps the friends that you need are the best friends indeed.

Written by Lane Hanson

Lane Hanson

Lane Hanson is BusinessPundit's Economy Editor. He reports on major changes in the US and Global Economies. He can be reached