Globe

Abe administration needs to make Japan's presence felt

January 13, 2013

Robert M. Kimmitt/ Senior International Counsel, WilmerHale (former U.S. Deputy Secretary of the Treasury)

The Liberal Democratic Party has returned to power in Japan with the inauguration of the administration of Prime Minister Shinzo Abe. The change in administration closely coincides with the beginning of President Barack Obama's second term in office. In the shifting world order, what shape should the U.S.-Japan relationship take? We interviewed one of the most experienced American policy experts with many years of experience in international politics and economics to hear his recommendations.

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We are in the fourth era since the end of World War II. The first era was the Cold War. After that, we moved into the post-Cold War era. Sept. 11, 2001, started a third era, and I would say the U.S. financial crisis in 2008 was the beginning of the fourth era. Now we are in the post-financial crisis era.

In those first three eras--Cold War, post-Cold War and post-9/11--security issues were of dominant importance. Now, economic issues are of equal importance. In fact, when we look at global relations, we have to recognize that economics and finance are as important as diplomatic and military matters. The key point is that Japan, the United States, indeed all countries, need to look at bilateral and multilateral engagement in a broader sense.

Japan, in past eras and now, remains our indispensable partner in Asia. The Japan-U.S. alliance is the cornerstone of security in Asia, and the foundation upon which we cooperate on a global basis. And the United States very much needs a strong, vibrant, growing, confident Japan. That is also in Japan’s interest, Asia’s interest and the global interest.

Each of us needs to put our own house in order. We in the United States need to address our debt, budget deficit and trade deficit, and we need to lay a firmer fiscal foundation. Japan faces the problems of debt, demographics and deflation. I would say Japan needs to take fundamental steps to increase dynamism in the Japanese economy. That would start with deregulation in the services area, especially in the financial sector. Second, a more flexible labor market is necessary, and third, Japan needs an increased openness to foreign direct investment and trade liberalization.

One of the ways to do that would be to make sure that Japan is an active participant in forums such as the G-20, the Organization for Economic Co-operation and Development (OECD), and the Asia-Pacific Economic Cooperation (APEC), and in the Trans-Pacific Partnership negotiations. The TPP will not only help lead to trade liberalization in the Asia-Pacific region, but it will also help bring increased dynamism into the Japanese economy itself.

The TPP framework is going to produce a state-of-the-art trade agreement that includes some of the traditional areas such as agriculture, automobiles and insurance, but focuses more on high-quality provisions on things like intellectual property protection and the proper role and activities of state-owned enterprises.

As part of the liberalization of the Japanese economy and deregulation, especially in services and the financial sector, it is important to put on the table what are the appropriate activities of a state-owned enterprise such as Japan Post, and especially Japan Post Bank and Japan Post Insurance. I think it is important that Japan provide a level playing field so that the consumer has the choice of deciding what is best for him or her. That is also one thing that contributes to consumer demand.

ENGAGE IN DIALOGUE AT THE WORLD'S TABLE

My own view is that we are going to see significant movement on trade agreements, both in the Pacific and the Atlantic, over the next two to three years. In the Atlantic region, something called the “Trans-Atlantic Economic Council” was set up in 2007, and in addition I think we are going to see the Obama Administration give real priority to the North Atlantic Free Trade Agreement proposed by German Chancellor Angela Merkel, an initiative that Secretary Hillary Clinton and Senator John Kerry recently supported in public comments.

I do not like the prospect of Japan being left behind as two new trade agreements begin to pick up momentum in the months and years ahead. From a U.S. perspective, we would welcome the participation of Japan in the TPP negotiations, even though we know we will not agree on everything. When the United States has a strong, well-informed, engaged Japanese representative at the table, a better result is always obtained by Japan, the United States and by the global community.

When I was at the Treasury Department and later in the State Department in the 1980s and 1990s, Japan was a very powerful voice at every important table--the G-5, G-7, and APEC. Japan continues to play an important role, but does not have quite the same impact now. Part of that, I think, has been because of the rapidly changing governments. From one meeting of the G-20 to the next, we have not been sure who would be representing Japan. Those frequent changes of government have made it harder for Japan to be as effective a voice in multilateral institutions.

We both need to make tough decisions at home and engage confidently in external discussions, including discussions with China. And “confidently” means being willing to listen, learn and make changes, even as we defend our core principles. Japan, like any country, will defend very strongly its views on territorial and sovereignty issues. But I think it is important for Japan also to demonstrate willingness to engage in dialogue on specific measures to reduce tensions.

I would take a look, for example, at how China and Taiwan have found a way to put their diplomatic and military differences into a certain negotiating construct that also opens the door to expanded dialogue, and eventually expanded trade and investment on the economic and financial side. I think the new Japanese government will have to send some early signals about whether it is willing to engage in a broader dialogue with China.

Energy is as important and fruitful an area for discussion between Japan and the United States as any area, because each of us is going through an energy transition. Japan has even more dependence than the United States on Persian Gulf oil, so this discussion also gets into political and security issues. So, I think there should be a centerpiece mechanism for the highest-possible level discussion of energy, in its broadest sense, from shale gas through nuclear, from alternatives through carbons, between two major economies like ours.

And that gets me to another thought. Why does the United States have a Strategic and Economic Dialogue with China alone? It is the only country in the world where, twice a year, Cabinet-level ministers and higher discuss traditional diplomatic and military issues, but also the full range of economic and financial issues. I would like to see a level of dialogue between the United States and Japan commensurate with the level of dialogue between the United States and China.

There is more maturity in the Japanese-U.S. dialogue, but I think the Chinese-American dialogue is fresher and has more senior-level attention. When you have been friends for a long time, as is the case with Japan and the United States, you can sometimes take that friendship a bit for granted. Even friendships, even alliances, need to be reviewed, renewed and rejuvenated from time to time, and there is no better time to do that than during the second term for a U.S. president and with a newly elected Japanese government.

HOPES FOR ECONOMIC GROWTH AND JOB CREATION

Economic revitalization is a top priority for Prime Minister Abe. I think the Japanese people were voting to go forward, and to try to return Japan to economic growth at or above the 3 percent level that would produce jobs and opportunity. That is the same challenge, and opportunity, faced by President Obama. I think both Japan and the United States need to strive toward that goal, using their now more stable political foundations.

I do not think there is anyone who disagrees that Japan’s current economic situation needs improvement. Sometimes when you are in a period of sluggish growth, steps are taken to try to stimulate growth through additional government spending.

There was even some stimulus spending done late in the Bush Administration, as well as early in the Obama Administration. But it always has to be done with an eye to the government doing as little as necessary to produce the desired result. So if there is a move toward additional government spending, including on infrastructure, it should be done in a way that is mindful of the long-term, harmful effects of debt; is designed actually to produce growth, jobs and opportunity; and over time is not seen as a substitute for private spending and private investment.

The tradition in the United States is that the actions and decisions of the central bank on monetary policy are independent of the government while, at the same time, very cognizant of the need to have effective transparency into monetary activities and fiscal operations, so that the two can both contribute to economic health and recovery.

My personal feeling is that the monetary easing measures taken by Ben Bernanke at the Federal Reserve Bank were not necessarily steps that he was seeking to take, but because there was little or no movement on the fiscal side, he felt that he needed to go, perhaps, a bit further than he would like.

I think we have seen a bit of that in Europe, too--the economic circumstances caused the central bankers to take exceptional measures, which, in some part, went further than the banks would have liked. However, because there had not yet been significant movement on the fiscal side, they needed to make sure that there was enough liquidity in the marketplace to keep those economies growing enough to have a chance to benefit from action taken on the fiscal side. But they are also very careful not to do too much, so it is important to strike a balance, being prepared to take exceptional measures but not going so far that they make fiscal action less likely.

I think it is important for the Japanese central bank to ask what is its appropriate role to help move Japan forward. The government and the central bank need to be open to one another about how they see the situation, what the needs are, what is the right balance of fiscal and monetary policymaking, how to produce a result that will continue Japanese excellence in exporting while also looking for ways to liberalize the economy and increase demand at home, and eventually lay the foundation that will provide for growth, jobs and opportunity.

I understand the prime minister wants to make his first visit to the United States early on. Prime Minister Abe and President Obama are two very experienced individuals, and I would hope they would be as candid as they could about the challenges that they share and how to pursue them.

If it is that kind of discussion, it sets the personal relationship between these two key leaders in a way that allows them, for all their future discussions, to get right down to business. We need to return to a relationship of mutual respect and direct dialogue like we saw between Prime Minister Yasuhiro Nakasone and President Ronald Reagan, in which I directly participated.

The strengthening of U.S.-Japan relations has to be seen as a bilateral responsibility, and the U.S. side has to make the commitment to engage with Japan at the senior level. I do not believe there is any bilateral relationship that is more important than the Japan-U.S. relationship, both for the Asia-Pacific region and for the global community.

(This article was compiled from an interview by Junji Tachino, Washington Bureau Chief, The Asahi Shimbun.)

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Robert M. Kimmitt

Born in Utah, 1947. Kimmitt served in the U.S. Army during the Vietnam War, and later became a senior official of the National Security Council under the Reagan Administration. He later served as Under Secretary of State for Political Affairs and the United States Ambassador to Germany under the administration of George H.W. Bush. He served as Deputy Secretary of the Treasury under the administration of George W. Bush. Kimmitt was involved in a wide range of policy-decision making processes from security and diplomacy to economics. Recently, he is said to be a potential candidate for President of the World Bank and Secretary of the Treasury.

Robert M. Kimmitt/ Senior International Counsel, WilmerHale (former U.S. Deputy Secretary of the Treasury)
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Robert M. Kimmitt (Photo: Yuko Lanham)

Robert M. Kimmitt (Photo: Yuko Lanham)

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  • Robert M. Kimmitt (Photo: Yuko Lanham)

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