By Jonathan Karp

Despite concerns about China’s growing military might and Asian tensions over disputed islands, the United States and Japan should invite China to join the Trans-Pacific Partnership trade agreement, Japanese and American experts told an Asia Society gathering in Los Angeles.

The latest Asian Economic Outlook event organized by Asia Society Southern California and the U.S.-Japan Council took place on April 28, as President Obama ended his trip to Japan and three other Asian countries. Some pundits dubbed it the “containment” tour because Obama skipped China and pledged to defend America’s East Asian allies against Beijing in the event of a military conflict.

“We must contain Chinese military expansion but work with China on trade and investment,” said Takeshi Niinami, chairman of Japanese convenience-store chain Lawson. “Japan and the U.S. should lead China to ultimately join the TPP, instead of excluding it, for global economic stability.”

The proposed trade agreement involves 12 Pacific economies, other than China, that account for some 40% of global economic activity.

Former Commerce Secretary and U.S. Trade Representative Mickey Kantor dismissed containment as a “flawed philosophy.” But he expressed even greater urgency about engaging China economically. “We should expand TPP now, not later,” he said. “This would break the idea that we’re trying to contain China.”

The Asia Society event focused on how the world’s largest and third-largest economies can redefine their relationship as Washington seeks to pivot its foreign policy priorities to Asia. The TPP has emerged as a key test of U.S.-Japan cooperation. Despite the announcement by Obama and Prime Minister Shinzo Abe of some progress by negotiators, challenges remain on market-access issues that have long frustrated free-trade talks between the allies.

Niinami, who is in charge of agricultural reform on Abe’s Industrial Competitiveness Council, said the Japanese business community wants to move forward with TPP, but special interests pose an obstacle. Kantor agreed, citing a divided Congress as a U.S. hurdle to completing the treaty.

“Beef, pork and dairy. These issues have been around a long time. Look how old I am, and I’ve dealt with them,” he said with characteristic bluntness. But he urged the countries to seize the opportunity. “We can’t wait for the next administration.”

Dan Okimoto, a retired Stanford professor who specializes in Japan’s political economy, said Japan needs to act quickly to revive growth before the Federal Reserve and other central banks begin to raise interest rates, reversing what he called “the biggest credit bubble in history.”

Abe’s economic program – known as Abenomics – hinges on three “arrows.” He has deployed two – monetary policy easing and targeted fiscal support – to spur economic activity and reverse deflation. The remaining arrow involves politically sensitive reforms to open markets for farm products, foreign capital and labor, fundamentally changing Japan’s economy to make it more competitive as its population ages.

“Japan needs to pull arrow three out of the quiver and shoot,” Okimoto told the audience. “I fear there isn’t a lot of time. Is there a sense of urgency?”

“Yes,” Niinami answered. He said that in the short-term, the government plans to invest in bringing more women in to the workforce, encourage Japanese citizens older than 65 to keep working, and allow in more foreign workers. In June, he said, the government will announce longer-term steps to deregulate health care and agriculture.

“We have a sense of crisis,” Niinami said. “We have to shoot the third arrow soon.”

Kantor added: “We whisper about it. We tiptoe around it. We have to go directly at it: Japan needs to open up to foreign capital.”

As evidence of the broad decline of Japan’s economy, CNBC reported the day after the Asia Society event some stark facts: In 1989, 12 of the world’s biggest 20 companies were Japanese. Twenty-five years later, vaunted Japan Inc. has fallen completely off the leaderboard. (http://t.co/DaGypK6fSf)

The panelists gave Obama mixed marks for his recent outreach to Japan. Yuko Kaifu, a senior vice president at Mitsubishi UFJ Financial Group-owned Union Bank in Los Angeles and former diplomat with Japan’s Ministry of Foreign Affairs, said she regretted the president didn’t bring Michelle Obama along to give a more personal touch. 

“It’s a pity that the friendship and deep relationship wasn’t nurtured during this visit,” she said, prompting others to reflect on the importance of personal ties between leaders.

Both U.S. and Japanese leaders have contributed to the sense of distance – Obama through his personal aloofness and Abe by his nationalist tone in recent months, which aggravated relations with China, as well as Japan’s fellow democracy, Korea. Panelists agreed the Abe administration needs to resolve, once and forever, two issues dating from World War II: apologizing for Korean wartime comfort women and war crimes during its occupation of China and Korea.

Discussion moderator Tom McLain, chairman of Asia Society Southern California, wondered if it was “realistic that the current leaders are the right ones” to move the U.S.-Japan relationship forward.

Kaifu and Okimoto suggested that political, not personal, realities might help: Abe has no real opposition, and Obama, as a second-term president, has greater freedom without the fear of reelection. “Perhaps there is a dynamic to do something different,” Okimoto said.

Strategic issues, rather than economic ones, offered perhaps more common ground for Washington and Tokyo. Panelists agreed the dispute over islands in the East China Sea, known as Senkaku in Japan and Diaoyu in China, should be settled through negotiations, not military conflict.

Improving U.S.-Japan ties will depend on the desire of the people of each nation to engage on many levels. Setting the stage for the Asia Society discussion, McLain pointed out that in less than 20 years, the number of Japanese studying at American universities has dropped by more than half, to less than 20,000. Meanwhile, the number of Chinese students has soared above 200,000.

“Many countries are competing for our attention, yet Japan is so tacit,” he observed, posing a basic question: “Why?”

All speakers agreed that this important dialogue on the future of the U.S.-Japan relationship should be continued in other Asia Society centers in the U.S. and Asia, as well as in Tokyo.
 

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