If there’s any country that won’t miss Donald Trump, it has to be Japan.
Ironic, perhaps, considering that no government backed—and enabled—the outgoing president with greater enthusiasm. In November 2016, nine days after Trump’s shock election win, then-Prime Minister Shinzo Abe rushed to Trump Tower in New York, becoming the first world leader to do so.
From that moment on until the day Abe stepped down on Sept. 16, Abe was one of Trump’s best pals—perhaps his only one—among democratic leaders. And with zero to show for it.
Trump’s exit from the Trans-Pacific Partnership pact was a big blow to Abe, who spend vast political capital convincing his party to join. Trump’s trade war slammed Japan Inc. His bizarre “love” for Kim Jong-un gave North Korea cover to raise its nuclear missile game. Trump tried to shake down Tokyo, mafia-style, for $8 billion annually to host U.S. troops.
Though Abe claimed to resign for health reasons, an approval rating well below Trump’s can’t be ruled out as a catalyst. Nor can the fallout from Trump’s trade war, which helped to derail “Abenomics.”
Enter newish Japanese Prime Minister Yoshihide Suga, who’s left with the fallout from Abe’s misguided Trump bromance.
Granted, Suga was there, too. He was Abe’s loyal chief cabinet secretary for nearly eight years. It’s also true that Japanese leaders often feel they no choice but to make nice with Washington, which provides Tokyo’s defense umbrella. Yet as Suga consolidates his power, he’s surely thanking his lucky stars that Joe Biden will soon occupy the Oval Office.
A lifelong multilateralist, President-elect Biden will rejoin the Paris climate accord right out of the gate come January. He’s likely to re-engage with TPP and seek to expand what was originally a 12-nation grouping. Lobbying South Korea, Indonesia, the Philippines and others to join would be China’s worst nightmare. Biden would treat Japan like a valued friend, not a subordinate power.
Though Trump is dragging his feet on conceding defeat, the world is moving on. Suga, for example, tweeted “warm congratulations” to Biden and Vice President-elect Kamala Harris. “I look forward,” Suga wrote, “to working with you to further strengthen the Japan-U.S. Alliance and ensure peace, freedom, and prosperity in the Indo-Pacific region and beyond.”
Biden’s arrival on the scene is indeed a grand opportunity for Suga to reboot a reform process that lost its way in the Abe/Trump era. The 500-plus point rally in the Nikkei 225 Stock Average on Monday tells the story.
The new president might not reverse Trump’s China attacks in short order, but he’ll surely bring down the geopolitical temperature. A ceasefire between Washington and Beijing would go a long way toward boosting business and investor confidence. So might a timeline for reducing Trump’s taxes on steel, aluminum and other vital commodities.
The return of constructive dialogue between the two biggest economies is reason for cheer. Again, Biden risks being tarred as soft-on-China if he agrees to too many concessions. Still, Trump proved to be less interested in a grand trade deal with China than the fight over one. Biden is sure to be less about theatrics and bluster, more about results. Trump’s tariffs failed even to curb China’s trade surplus.
“Biden will approach China with a greater emphasis on process, predictability, and multilateralism,” says analyst Henry Rome of Eurasia Group. “A less erratic U.S. policy limits the risk of geopolitical accidents and may also make the U.S. more competitive over the longer run.”
This will create space for Suga to regain the reformist momentum Japan let slip away these last few years.
Early on, Abe did put a couple of notable upgrades on the scoreboard. The biggest was tighter corporate governance. Steps to impose a U.K.-like stewardship code and a push to add more outside directors were a boon for investors. They’ve done little, though, to boost wages broadly. CEOs still lack the confidence to share profits with workers.
Mostly, though, Abe bet it all on aggressive Bank of Japan easing. That buoyed asset prices. It didn’t, however, kick off a virtuous cycle of wage and consumption gains to end deflation.
The coming calm is a window of opportunity to accelerate moves to loosen labor markets, cut bureaucracy, increase productivity, catalyze a startup boom, empower women, import talent and pivot toward renewable energy. It’s also a chance to forge better ties with China and South Korea.
Suga inherited incredibly tense relationships with Beijing and Seoul. Biden’s election could provide an excuse for North Asia’s biggest economies to put aside enmities over the past and cooperate on trade and regional finance. Biden would be wise to host a North Asian summit at the White House.
Biden’s arrival on the scene could be the game-changer Tokyo needs to revive its reform process. U.S. policies generating more economic tailwinds than headwinds are a chance at a fresh start for Suga’s fledgling government.
The key, of course, is Suga sticking around for a while. Though Abe had nearly eight years in power, the preceding six governments all came and went in roughly 12 months. And with nary a noteworthy success in raising Japan’s competitive game.
The Biden tailwind presents an opportunity to clear the decks of the Trump sycophancy. One of the great ironies of Abe’s persona as a strong and proud leader is how he publicly chased after Trump. That put Japan in a terrible position as Trump took one step after another at odds with Tokyo’s economic and security priorities. Economist Martin Schulz at Fujitsu Ltd. sees this as an opportunity for Japan to spread its wings and play a role greater than the “middle power” one of the Trump era.
A Biden era also is sure to attack Covid-19 in more effective ways than Trump’s disastrous strategy of downplaying it. The world’s biggest economy surpassing 10 million coronavirus infections is dismal news for the trajectory of the global financial system.
Suganomics now has a calmer backdrop on which to work. And to work with Washington to increase the cooperative and collective prosperity of the pre-Trumpian chaos era.