William Pesek is a Tokyo-based writer and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”
In 2012, Shinzo Abe won the premiership with plans for a multi-pronged assault on a decades’-long malaise. His bold blueprint aimed to end deflation, reanimate Japan’s innovative spirits and restore confidence to a nation being cast uncomfortably in China’s shadow. “Morning in Japan,” if you will.
Seven years on, Abe has done nothing of the sort. Rather than modernize Japan’s model or increase competitiveness, Abe relied on old-school currency depreciation and corporate tax cuts to catalyze an export boom. Now, as the trade war deepens, wages are flat as Japan’s economy slows faster than China’s. It’s on the verge of recession, ending the best growth run since the 1980s.
Abe’s biggest misstep? Relying on the same policies Tokyo did 30-some years ago. It means, essentially, that Abe is targeting an industrial system that no longer exists in the age of China and rapid technological disruption.
So is President Trump. That $1.5 trillion Republican tax cut had Reaganomics written all over it. So does the regulation-slashing tear his White House is on. Trump is focusing disproportionate attention on an exchange rate he claims is “killing us.” His demand that the Federal Reserve cut interest rates back to zero, Japan-style, are code for “the dollar is too strong.”
It’s no coincidence that Team Trump wants to embed a currency pact in any trade deal with China. Even better, they hint, would be a new “Plaza Accord,” an aspiration that neither Treasury Secretary Steven Mnuchin nor trade adviser Peter Navarro denies.
Irony abounds. The 1985 deal to weaken the dollar vs. the yen, one that forms the basis for Trump’s China policy, was forged at a New York hotel he later owned for a time. It was during this period that the economic worldview Trump took into the Oval Office was forged. Trump’s when, in other words.
The mid-80s was a time when Japan was cast in the boogeyman role China now plays. Ronald Reagan was in the second term of his own “Let’s Make America Great” presidency. Yet to mercantilists such as Trump, Japan Inc. stood in the way. It was buying up New York’s Rockefeller Center, Hollywood studios and famed golf courses like California’s Pebble Beach. Japanese CEOs hoarded Monets, Picassos and Warhols to hang in Tokyo.
Movie-goers flocked to theaters to catch “Gung Ho,” Ron Howard’s take on Detroit losing its franchise to Japanese carmakers. Pundits warned of an economic Pearl Harbor. In a 1989 interview, Trump complained that Japan had “systematically sucked the blood out of America — sucked the blood out! They have gotten away with murder. They have ended up winning the war.”
Such superlatives will sound familiar to China’s Xi Jinping. Trouble is, the global levers Trump remembers from the 80s don’t exist anymore. Back then, the Group of Seven nations — or the Group of Five at the time — could agree on a currency deal and engineer the desired result in markets. Not today, when the Chinese and Indian economies dwarf some G-7 members. Ditto for the trade war. Impose tariffs on China, and the jobs simply move to Vietnam and Thailand, not back to the United States.
With Trump stuck in a time warp, his administration isn’t getting under the economy’s hood to increase competitiveness and innovation. It’s not investing in education and training. Visa crackdowns make it harder to attract the best and brightest entrepreneurs. Blaming trading partners for inequality and stagnant wages distracts Washington from increasing productivity, improving infrastructure or creating new industries.
Abe, too, is treating the symptoms of Japan’s troubles, not the underlying causes. Since Japan’s 1980s “bubble economy” ended, Tokyo has been stuck in a cycle of government stimulus package, rate cut, repeat — to the point where it has the highest debt burden in the developed world and the lowest rates.
Rather than break this cycle, Abe turbocharged it. Instead of pro-active upgrades, he brought back the trickle-down policies of Yasuhiro Nakasone’s day. Nakasone led Tokyo from 1982 to 1987, as much a deeply nostalgic time for Japanese conservatives as for their American peers. He stood shoulder-to-shoulder with Reagan, Margaret Thatcher and Helmut Kohl back when big, audacious things seemed possible. And Abe’s dad, Shintaro Abe, had a front-row seat as Nakasone’s foreign affairs minister.
Instead of remaking a rigid and aging economy, though, Abe is relying on a weaker yen and antiquated industrial tweaks. That leaves today’s Japan even more vulnerable to a China positioning itself for 2025 and beyond.
Nationalism and protectionism aren’t antidotes to the forces of globalization. Neither is dragging Japan and the United States back to a world order that modernity long ago replaced. But Abe and Trump sure are trying.
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