The most important meeting at last week’s Group of Twenty summit in Osaka is one that didn’t happen: between host Shinzo Abe and South Korean President Moon Jae-in.
Sure, US President Donald Trump’s chat with China’s Xi Jinping was accorded breathless news coverage. The same with Prime Minister Abe’s brief meeting with President Xi, signaling a welcome thaw in relations between Asia’s No 1 and No 2 economies.
But the fact Abe and Moon in essence pretended the other leader wasn’t there is a dreadful omen for the global economy at arguably the worst possible moment.
In Osaka, Abe presented himself as the diplomatic adult in the room. He spearheaded efforts to get 19 other leaders, including America’s protectionist-in-chief, to declare they will “strive to realize a free, fair, non-discriminatory” environment for trade and investment.
Just two days later, Abe pulled a Trump on Korea, tightening controls on exports of semiconductor materials to Asia’s No 4 economy. Abe’s breathtaking about-face made a mockery of the Osaka declaration. Worse, it reminded investors that the global economy finds itself in a steadily darkening place.
One reason: South Korea’s sizable, open economy often serves as a global weathervane. More than 50% of its gross domestic product is tied to trade flows. Korea’s zigs and zags tend to foretell where key economies large and small might head a few months out. And at the moment, Korea is showing telltale signs of strain.
On Wednesday, Seoul downgraded its growth target for 2019 to 2.4-2.5% from 2.6-2.7%. Not an epic change, but the issue is less the what than why the government is lowering its sights. President Moon’s team thinks exports will crater by 5% this year, a clear sign South Korea is getting trumped.
It should worry Abe’s Japan, for example, that South Korea just cut its 2019 inflation projection to 0.9% from a pervious 1.6%. Not deflation, per se, but a harbinger of weakening consumer-price conditions that spell trouble for Japan’s reflation efforts.
The more serious reason: Trump’s tariffs arms race is influencing behavior far beyond Washington. Abe’s going after Korea Inc, says Jeff Kingston, head of Asian studies at Temple University’s Tokyo campus, is an “unhelpful and damaging act right from the Trump bullying playbook.”
Abe’s act is retaliation for Seoul’s handling of a string of lawsuits that wartime Korean laborers won against Japanese companies. Abe, it seems, hoped Moon would intervene and quash the rulings. Abe is miffed, too, that Moon walked away from a 2015 deal to settle the controversy over Korean women forced to work in wartime Japanese brothels.
Had Abe and Moon met in Osaka, they might have realized that both their economies are collateral damage as Trump and Xi trade barbs. They might have discussed ways to survive the financial storm. That could include moves to lower bilateral trade barriers, deepen currency-swap arrangements, link bond and stock markets and mull collective uses for a combined US$1.7 trillion of foreign-exchange reserves.
If only Abe and Moon had talked, they might have compared notes on ways to run out the clock on Trump. On the surface, Abe is Trump’s best friend on the world stage, while Moon is an easy-going geopolitical partner. Below it, officials in Tokyo and Seoul pray Americans elect more enlightened and stable leaders come 2020.
If only the leaders of Japan and South Korea had discussed a tag-team approach to reining in Kim Jong Un. Trump’s bizarre “love” affair with the North Korean leader is rewarding Pyongyang’s worst behavior. His all-carrots-no-sticks policy serves Kim’s interests at the expense of Tokyo’s and Seoul’s. Caught up in the headlines – and hopes for a Nobel Peace Prize – Trump is ignoring the short-range missiles that could hit Japan.
Instead, they let parochial matters eclipse the existential crisis on the horizon, one that their actions may intensify. South Korean voters, for example, are demanding that their government boycott any number of Japanese goods, from cars to electronics to beer to cosmetics to entertainment. Petitions are piling up demanding action by the presidential Blue House.
That, of course, would prod Abe’s Japan to retaliate, forcing Moon to follow suit, and vice versa. The resulting Japan-Korea trade war would add to the economic headwinds slamming Asian growth. It also is stellar news for China. The interconnectedness of Japanese and South Korean manufacturing means that any disruptions make Xi’s job easier.
The same goes for the Kim regime. The more two nations seeking to curb Pyongyang’s exploits brawl, the less likely they are to join forces. Trump wins, too. Tokyo and Seoul joining forces on trade or security would complicate the White House’s divide-and-conquer worldview.
Abe’s move to weaponize fluorinated polyimides, used in flexible smartphone displays, as well as the photoresist and high-purity hydrogen fluoride needed to make semiconductors bears Trump’s fingerprints.
Trump has legitimized some terrible behavior around the globe – from Kim to Philippine President Rodrigo Duterte. But Abe’s duplicity toward South Korea – G20 free-trade cheerleader one day, Trumpian the next – marks an ominous moment for globalization. In recent days, Trump stepped up the rhetorical attacks on the European Union, the next target of his mercantilist ire. On Japan, too, much to Abe’s surprise. Trump, it seems, is obsessed with a yen he views as too weak.
There is still time for Abe and Moon to join forces – to plot a brighter future instead of obsessing over the past. Yet the events of the last 10 days augur poorly for North Asian cooperation. Or, for that matter, the trajectory of the global economy.