Japan to Obama: Stay far away from trade issues

by and

Despite the U.S. public’s joyous welcome for new President Barack Obama, Japanese policymakers and business leaders are fretting over a revival of trade protectionism.

But U.S. policy experts say Obama is not likely to take this route as he focuses on his main priority: reviving the U.S. economy.

“The first thing he should do is take steps to shore up the economy,” said Masahiro Sakurauchi, deputy director of North America division for the Japan External Trade Organization. “It is not the time for him to address trade issues.”

It is also imperative for Obama to concentrate on the economy to enable him to carry out the other priorities on his agenda, including withdrawing from Iraq and reforming the health-care system, as well as winning another term.

On Jan. 15, Democrats in the House of Representatives unveiled the first details of an emergency package under which Obama plans to spend $825 billion to revitalize the economy and create up to 4 million jobs. The proposals will need to clear both the House and Senate.

Economists in Japan will keep a close watch on whether Obama succeeds in stimulating the U.S. economy, on which the Japanese economy is largely dependent. Since the subprime mortgage crisis triggered the U.S. economic turmoil last year, the sales and profits of Japanese blue-chip exporters, including Sony Corp. and Toyota Motor Corp., which are heavily reliant on U.S. demand, have tumbled.

The continuing crisis in the U.S. is also likely to lead to the dollar being sold, which will send the yen higher and further erode Japanese exporters’ profits. If U.S. stocks were to tumble further, so would Japanese stocks, weakening the capital of Japanese firms.

“Unless the U.S. (economy) settles down, (the economies of) Japan, all other countries — advanced, emerging and oil-producing — will not bottom out,” said Hiroshi Hanada, an economist at Sumitomo Trust & Banking.

Analysts say that as long as the Obama administration focuses on regenerating the economy with the huge stimulus package, its attention will not be on trade issues, even though Japan has been criticized for its tariffs on agricultural products, including rice and beef.

They also said the economic situation has changed since the 1980s, when the United States pressured Japan to scale down its swelling exports to the U.S.

Such pressure prompted major automakers Toyota, Honda Motor Co. and Nissan Motor Co. to build production plants in the U.S., hire thousands of local workers and sharply cut down their exports to North America.

In addition, Japan now risks being overtaken by China, whose economy and exports have grown enormously in recent years.

“I can’t imagine any pressure (on trade issues) will come from the Obama administration because the economic environment is so different,” JETRO’s Sakurauchi said.

U.S. policy analysts also said the lineup of Obama’s new Cabinet includes opponents of protectionism.

“I don’t believe this Cabinet will resort to protectionism,” said Masahiko Adachi, senior analyst in charge of North America at the international affairs team of Sumitomo Shoji Research Institute Inc.

Adachi, who researched hundreds of campaign advisers to the 2008 presidential election candidates, said members of the Obama administration include Democrat centrists who advocate free trade, a policy usually supported by Republicans.

The lineup includes Obama’s top economic advisers during the campaign — Austan Goolsbee, a University of Chicago economics professor, and Jason Furman, an economist at the Brookings Institution.

Goolsbee will be a top staff official of the Economic Recovery Advisory Board, a new White House economic panel, while Furman has reportedly been chosen as deputy director of the National Economic Council, a government agency coordinating economic policy for the president.

Also, his pick as U.S. trade representative, former Dallas Mayor Ron Kirk, is also an advocate of the North American Free Trade Agreement. “Since he is a mild-mannered nonpartisan, his role is likely to include soothing any friction (in trade issues),” Sakurauchi said. As well as initiating U.S. trade talks with other countries, the trade representative’s role is also to coordinate policies with Congress, he added.

But Sakurauchi noted that the appointment of Kirk, who lacks experience as a trade policy administrator, means the new administration will not be focusing so much on trade issues.

“The lineup (of the Obama team) will basically stress the administration’s medium- to long-term trade policies,” Sumitomo Shoji’s Adachi said. The nominees will need to be approved by Congress.

Experts also said Obama’s foreign policy advisers since the campaign include academics who are experts on Japan, including Joseph Nye, Kurt Campbell and Gerald Curtis. This will help avoid any miscommunication between the two countries when there are signs of trade or economic friction, they said.

But such optimistic views could be overshadowed if Obama fails to kick start the U.S. economy. Some economists warn that if the U.S. economic crisis continues, calls for protectionism could grow.

“If trade issues gain the attention (in the future), it would mean the administration is failing with the stimulus steps and needs a scapegoat,” JETRO’s Sakurauchi said.

Sumitomo Trust’s Hanada said the negative view is widely held among Japanese policymakers and economists that the Democratic administration might resort to protectionist policies because of the party’s support base is found in labor unions in manufacturing industries.

If his economic stimulus measures do not turn out to be effective and the public’s expectations are not met, Obama may become more inclined to take a protectionist stance, Hanada said.

Some analysts also said it is possible the Democrat-controlled Congress may increase pressure on the Obama administration to move to protect the U.S. market, especially as the U.S. public is more cautious of globalization than before.

According to a CNN/Opinion Research Corporation poll in July, 51 percent of Americans view trade as a threat to the economy — the first time in a CNN poll that a majority of Americans report holding negative views on free trade.

Kenzo Hirose, an international economics professor at Kwansei Gakuin University, said Washington may require Japanese manufacturers in the U.S. to use more U.S.-made components.

“By doing so, the U.S. will be able to secure employment,” he said, indicating that would be one way to ease the people’s fear over foreign manufacturer.