Japan as the Unlikely Liberalization Leader

Following the US’ withdrawal from the TPP, Japan is stepping up as a global leader in free trade and market liberalization.

Source: Prime Minister's Office of Japan

On January 23rd, newly-inaugurated President Donald Trump withdrew the United States from the Trans-Pacific Partnership (TPP). The initial reaction of the 11 other TPP countries was, understandably, one of significant disappointment. However, while Japan’s Prime Minister Shinzo Abe initially said the agreement would be “meaningless” without U.S. participation, Japan has appeared to change its position, urging others to bring the deal into effect without the United States. The recently concluded EU-Japan trade deal furthers an understanding of Japan as a leader of trade liberalization, with Abe telling G20 leaders—including Trump—that the new deal “will be the model of the economical order of the twenty-first century.”

Japan’s doubling down on free trade is not only significant for its contrast with growing criticism of international economic liberalization among advanced economies, but also with Japan’s own historical protectionism. Furthermore, Japan’s free trade efforts bely the relative nascence of its commitment to liberalization, with Japan having been the last of the 12 countries to join the TPP negotiations. How, then, has Japan emerged as a free trade leader, while the United States has fallen behind?

First, while hard to directly measure, Japan’s degree of immigration is important to its new trade liberalization leadership. Significantly, trade has been seen in the United States as but one aspect of a costly and often unfair globalization process. This reflects not only the fear that good jobs may move abroad through trade, but also that immigrants may take those that are left. However, with no significant immigration to speak of, complemented by the tightest labor market in 43 years, the average Japanese worker does not face this sort of pressure. By not having to debate trade amidst broader concerns about globalization, Japan has been better able to focus on the costs and benefits of trade itself, paving the way for support for free trade.

The specific costs and benefits of trade in context of the Japanese economy are of further importance to Japan’s new leadership. For example, while the United States’ agriculture industry expected to benefit from the TPP overall, major league manufactures were expected to assume the import-competing position. Concerns in Japan were generally reversed, especially in relation to the United States, with perceived costs for the agricultural sector and benefits for export-oriented Japan Inc. Significantly, while agriculture represented 3.8 percent of total employment for Japan in 2012, U.S. percent employment in manufacturing was 10.3 percent in that year. Perhaps more importantly, however, Japan’s shrinking domestic market serves as significant incentive for bolstering its export-oriented industries through trade liberalization. If Japan’s economy is to have any hope of regaining vitality, Japan has little choice but to pursue greater trade opportunities. In this manner, recent free trade deals have become an easier sell on their own terms for Japan.

Japan pursued policy efforts to cushion the blow of trade liberalization; in contrast, the US’ ineffective case for TPP relied on a rehashing of general arguments on gains from trade

With that said, agriculture is still of outsized significance in Japan, both symbolically and as a historical component of the ruling Liberal Democratic Party (LDP)’s patronage system. Of further importance to Japan’s emergence as a liberalization leader, then, is the Abe government’s policies toward the agriculture industry. This includes a breakthrough agreement to limit the power of the national agriculture cooperative along with efforts to gain farmers’ understanding of TPP, with the latter highlighted by the selection of the popular politician Shinjiro Koizumi to head the LDP’s panel selling participation in TPP. Japan also pursued additional policy efforts to cushion the blow of trade liberalization and enhance Japan’s agricultural competitiveness. In contrast, the United States’ case for TPP, as noted by Mireya Solis of the Brookings Institution, largely—and ineffectively—relied on a rehashing of general arguments on gains from trade. While challenging of institutional opposition (e.g. unions) was not a viable possibility, American proponents of trade did not provide sufficient incentives to assuage concern. The Abe government’s efforts may not have been sufficient in themselves, but they were necessary for confirming Japan’s free trade ambitions.

However, of perhaps greatest significance to Japan’s emergence as a trade leader is the position of its leadership within the ruling party and the position of its ruling party within Japanese politics. While there are many in the LDP who are cautious of losing the support of Japan’s farmers, Abe’s singular leadership and strength compared to recent prime ministers has bolstered his ability to effectively pursue trade deals. The ruling party has also benefitted from following on the administration of the Democratic Party of Japan (now the Democratic Party, or DP), widely viewed as ineffective and currently saddled with a 7 percent support rate.This situation contrasts with the Obama administration’s TPP push, an effort led by an embattled president from the traditionally more protectionist party. Furthermore, TPP proponents also faced increasingly anti-trade opposition from within the Republican Party, a much more significant threat than that of the Japanese opposition. The Abe government’s position of relative unity and strength contrasts with the Obama administration in TPP promotion, and helped seal the deal for Japan’s trade leadership.

What do these understandings mean for Japan’s free trade future? Structurally, Japan looks likely to be incentivized toward further trade liberalization. While increased immigration is required for Japan to maintain a position of prominence given its declining population, the expectation that such a development would take place in a limited and controlled manner should guard against broader concerns about globalization in Japan. The significance of big business to Japan and the necessity of finding new markets amidst population decline should provide ready-made support for current and future free trade efforts. Furthermore, while far from confirmed, the expected further weakening of Japan’s agricultural lobby coupled with ample efforts to support the industry look likely to limit and respond to competing concerns.

Ultimately, the grease that allowed Japan’s recent free trade efforts to come to fruition—Japanese domestic politics—is probably the greatest area of uncertainty. The historic loss of the LDP to Tokyoites First in the recent Tokyo Metropolitan Assembly election reflects deteriorating public trust, and may open up challenges to Abe both outside and within the LDP. With that said, the extremely weak showing of the DP in the Tokyo election, the difficulty of taking local successes national as per Osaka’s Toru Hashimo, and the lack of a clear anti-trade coalition within the LDP are reasons to doubt a significant overturning of the current order any time soon. Ultimately, then, Japan appears poised to take the lead on free trade for at least the near term. G20 leaders, and especially Trump, should be paying attention.

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Taylor Wettach is a J.D. candidate at New York University School of Law and a Non-resident WSD-Handa Fellow with Pacific Forum, Center for Strategic and International Studies (CSIS). He previously worked at CSIS, the Japan Business Federation (Nippon Keidanren), the Rebuild Japan Initiative Foundation (RJIF), and the Stanley Foundation, and was a participant in the Japan Exchange and Teaching (JET) Program. Taylor holds an M.A. from Georgetown University's School of Foreign Service (SFS), a Certificate from Keio University's Center for Japanese Studies, and a B.S., magna cum laude, from Georgetown SFS. He tweets at @twettach.

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