US President Joe Biden and Japanese Prime Minister Yoshihide Suga in a combination image. Photo: Agencies

TOKYO – Try as they will to plot the future, much of today’s (April 16) Oval Office chat between Joe Biden and Yoshihide Suga will be spent stewing over the economic wreckage of the last four years.

Top laments include former president Donald Trump’s failed trade war, a Covid-19 crisis neither country handled particularly well, the return of Japan’s deflation troubles and counting the ways Xi Jinping used the regrettable 2017-2021 era to strengthen China’s claims on the economic decade to come.

China’s record 18.3% economic growth surge in the first quarter from a year earlier presents quite a backdrop for the Biden-Suga show. The jump confirms that “China is relatively further ahead than most economies in opening up and vaccinating its population,” says Katrina Ell at Moody’s Investors Service. Moody’s now forecasts 8.2% mainland GDP growth in 2021.

Japan, by contrast, is still smarting from Trump’s trade war, never mind Covid-19. And Trump’s 2017 decision to pull out of the 12-member Trans-Pacific Partnership.

For Suga, it’s personal. As predecessor Shinzo Abe’s cabinet chief from 2012 to 2020, Suga was the hammer. He was the man cajoling a protectionist ruling Liberal Democratic Party (LDP) to join the TPP against the protests of farmers, fisheries and other powerful vested interests.

The day Trump walked away was a triumphant one for Beijing and a disastrous one for Tokyo. So, when Friday’s conversation does take a where-to-now turn, pulling Biden back into the TPP fold is the top economic and trade issue on the agenda.

While Trump was replacing the TPP with mean tweets and taxes on mainland goods, Xi was penning history’s biggest trade deal. The 15-nation Regional Comprehensive Economic Partnership (RCEP) put China exactly where it wanted: at the center of a framework linking 3 billion people pivoting toward middle-class status.

Yoshihide Suga (R) speaks next to a monitor displaying a virtual meeting with US President Joe Biden (top L), Australia’s Prime Minister Scott Morrison (bottom L) and India’s Prime Minister Narendra Modi during the virtual Quadrilateral Security Dialogue, or Quad, meeting, on March 12, 2021. Photo: AFP/Kiyoshi Ota

Countering China

Japan is very keen on America returning to Asia – not as a tornadic disruptor, but a pro-growth partner. Suga’s hope is that America’s return to the TPP reinvigorates efforts to counter China’s fast-expanding influence. And to grow the franchise, lobbying South Korea, Indonesia, the Philippines and others to join.

Biden and Suga understand that China is best countered multilaterally. Hence Tokyo’s desire to add weight to the so-called “Quad” framework. Though this linking of Japan, Australia, India and the US technically began in 2007 as a security dialogue, its mission has since crept into trade and commerce.

The testiness on display between Biden State Department officials and their Chinese counterparts in Alaska last month was the talk of Tokyo. The hope in Nagatacho, Tokyo’s Capitol Hill, is for a US-China reset that re-prioritizes Tokyo’s central role in Asia.

“In inviting Suga first, the Biden administration is cementing the position of Japan as an indispensable ally in tackling vexing regional and global challenges and reaffirming the high priority he attaches to the Indo-Pacific,” says analyst Mireya Solís at the Brookings Institution.

“In accepting this clear deference, Suga faces his most significant diplomatic opportunity and test since taking the reins of government last fall.”

Adds Joshua Walker, CEO of the New York-based Japan Society: “If both leaders play their cards right, ties between Tokyo and Washington could anchor a peaceful and rules-based order in the Indo-Pacific for years to come.”

Again, the missteps of the last four years will be written everywhere between the lines in bold font on Friday. Though Abe talked tough, he was Trump’s errand boy. Abe demurred as Trump’s trade war wrecked any hope Abenomics might succeed.

Are Suga’s days numbered?

Trump tried to extort his “pal” for another US$8 billion annually for hosting US troops. Trump even disclosed that Abe had nominated him for a Nobel Peace Prize, humiliating Tokyo.

The bad news, though, is that the events of the last four years also aren’t on Suga’s side as he hopes for a Biden breakthrough. One big caveat: Suga’s days may be more numbered than US officials rolling out the red carpet believe.

Thanks to a flatlining economy, a weak coronavirus response and domestic scandals, Suga’s approval ratings are in Trumpville – the low 40s (when they do climb out of the 30s). Suga had hoped that staging a rip-roaring Summer Olympics in July would be his ticket back to popularity. But at least 72% of Japanese are against holding the Tokyo Games amid Covid-19.

Suga’s “Hail Mary pass” would be a big gesture from Biden. Case in point: the US and Japan joining forces to build supply chains critical to making semiconductors. Chip bottlenecks have become a critical issue thanks to Trump’s trade war and pandemic-related disruptions. It’s thrown the typical supply and demand balance more and more out of whack.

A March 19 fire at a top Renesas Electronics Corp factory in Japan’s Ibaraki Prefecture made things even worse, particularly for the automotive industry. In early April, supply troubles forced General Motors Co to slow production to a crawl.

It’s a multi-faceted problem, one that bears Trump’s fingerprints stemming from efforts against Huawei Technologies. First, the US restricted Huawei’s access to US components. Then, Team Trump made it virtually impossible for the national champion to do business with US trading partners.

The fallout from this ploy to “kill Huawei” derailed Xi’s ambitions to morph China into semiconductor central in short order.

Chinese President Xi Jinping has not been idle. Photo: AFP

Xi’s ‘technology power’

Again, though, how long might Suga be around to see the project through? And it’s not like Xi is taking this potential US-Japan collaboration lying down.

Late last month, Beijing announced a package of tax breaks to revitalize innovation and growth in the semiconductor space. It’s part of Xi’s scheme to transform China into a self-reliant “technology power.”

But then so is Biden, it seems. His “Buy American” push is a galaxy away from Trump’s mix of massive corporate tax cuts and China sanctions. Neither worked. All Trump’s $1.7 trillion tax cut did was finance stock buybacks.

Trump tried using tariffs to force factories to return to the US. Instead, they pivoted to Vietnam and Bangladesh. Washington’s trade deficit with Beijing was bigger after Trump staggered from office than when he entered.

Biden is taking a different tack. No one expects his $2.3 trillion infrastructure bill to have Beijing quaking. Nor will the $300 billion investment Biden wants to make in research and development and “breakthrough technologies” like batteries, electric vehicles, 5G and lightweight materials turn the tables on China, which spends exponentially more.

Yet Biden’s plan aims to build economic muscle at home to take China on the right way – not with trade-deal legalese but with old-school innovation. What role Japan might have in the effort is an open one that should worry Suga.

Suga also will need to hone his kabuki skills in the Biden area. Whereas championing human rights wasn’t Trump’s thing, it’s proving to be a Biden priority. Suga’s LDP has made perfunctory comments about Beijing’s policies toward the Muslim Uighur minority in Xinjiang, but avoided economic sanctions.

Steps to come from Biden’s administration could put Suga in a bind, particularly as Japan’s sprawling retailer Muji faces boycott threats over its sourcing of cotton from Xinjiang. With an aging and shrinking population and deflationary pressures flaring up again, Japan is loath to lose Asia’s biggest market.

Investors worry that Suga “may be asked to come in step with Washington’s hard-line stance on China,” notes analyst Eiji Kinouchi of Daiwa Securities. That, he adds, “could worsen” Sino-Japanese relations.

Smoothing things out with South Korean President Moon Jae-in may not be easy. Photo: AFP/The Blue House


Biden also wants to get the trilateral US-Japan-South Korea framework back on track after years of Trumpian neglect. That might force Suga to deal with thorny issues, including World War II-era sexual slavery and forced labor claims. Biden must tread carefully so as not to derail any potential Tokyo-Seoul cooperation on reining in North Korea.

Both Biden and Suga are on the prowl for other “deliverables.” Biden wants a commitment that Japan will continue buying US Treasury securities, of which Tokyo holds $1.28 trillion. As Biden plans a $2.3 trillion infrastructure boom – on top of a nearly $29 trillion debt – he’s depending on Washington’s Asian bankers for financing (China holds $1.1 trillion in US Treasuries).

Biden also might hit Suga’s government up for direct involvement. Japan is keen to go toe-to-toe with China’s Belt and Road Initiative, offering its high-quality project scheme as a ready alternative. To analyst Neil Thomas at Eurasia Group, it’s a logical area for both the US and Japan to “decouple” from China.

Suga will be looking for a Tokyo Olympics pick-me-up by asking Biden to attend the opening ceremony on July 23. The event Tokyo spent roughly $25 billion trying to stage is on the ropes. On Thursday, top lieutenant Toshihiro Nikai became the highest-ranking official to admit the event might not happen

“What would be the point of an Olympics that spread the infection?” said Nikai, secretary-general of the ruling LDP.

Logo of the Tokyo 2020 Olympics at Tokyo Metropolitan Government headquarters in Shinjuku Ward is pictured in March when postponement was being discussed. Photo: AFP/The Yomiuri Shimbun

Not everyone thinks this would be an economic disaster. “A change to the plans for the Olympics would have a limited impact on overall near-term growth prospects, given that Japan is a large and diversified economy,” says Odd Per Brekk, deputy director of the International Monetary Fund’s Asia-Pacific department.

Yet attracting a record 40 million tourists to Japan in the months surrounding the Games was always a top LDP priority. It was an expected big source of consumption sure to propel Japan back into the economic plus column. So was earlier expected robust global growth, something on which Suga’s Japan also can’t rely.

The two leaders have their work cut out joining forces on trade, the pandemic, supply chains, 5G technology and climate change. But like it or not, China will be the 800-pound dragon hogging all the attention.