by Nomi Prins, DailyReckoning: I’ve just wrapped up a long trip to Japan. And I’ve taken away one lesson from all of my conversations, speeches and research: The rise of nationalism in the U.S. will cause massive shifts in global trade alliances.
One of the main beneficiaries will be Japan. Now, Japan might not be on your radar, day-to-day, but it’s about to play a very important role in the world of Donald Trump.
Here’s what I mean…
During President Trump’s campaign, he often discussed making “better” trade deals for the United States with its partners.
Indeed, one of his first executive orders as President on January 23, 2017 involved removing the U.S. from the Trans Pacific Partnership Trade Agreement, or TPP. That agreement originally involved 12 countries including the U.S.
Now, TPP is left with 11: Japan, Mexico, Australia, Brunei, Canada, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. The TPP’s member countries account for 40 percent of global GDP, 20 percent of global trade, and 11.3 percent of the world’s population. It will still likely go ahead without the U.S., which will put America at a trading disadvantage.
However, this offers Japan good news for future trade and projects. Japan is well positioned to benefit both from existing alliances with the U.S. and growing ones in the rest of the world, particularly with China and the EU.
Another key agreement, called the RCEP, also excludes the U.S. but includes Japan. It represents 16 countries that account for almost half the world’s population, contribute 24% percent of global GDP and over a quarter of world exports.
The countries are Japan, Australia, Brunei, Cambodia, China, India, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam. The economic and population growth rates of the RCEP countries far outpaces that of the U.S. and EU.
This trend of non-U.S. trade alliances is more pronounced than ever for three reasons: First, because of the United Kingdom vote for Brexit last summer, which cast into flux the future trade and capital flows between the U.K. and its trading partners.
The second reason is the Trump doctrine of bilateral rather than multi-lateral trade agreements. Taking the U.S. out of critical multilateral contention during an intense period of international re-alignment means more economic opportunity for other budding alliances as well as a long-term power shift. This would benefit Japan.
Finally, there is the ongoing West to East shift of power and influence. Since the Federal Reserve and its cohorts at the ECB and BOJ embarked upon quantitative easing, or asset buying to bolster the markets, debt to GDP levels in those areas jumped as well. Respectively, they are 90.1 percent for the ECB, 104.3 percent for the U.S., and 250.4 percent for Japan).
Nomi Prins delivering a speech to Canon Institute for Global Studies in Japan. Canon is a prestigious think tank populated with former government and central bank officials, and academics.
Pushback, particularly from China’s central bank, the People’s Bank of China, has resulted in the yuan’s inclusion into the IMF’s special drawing right, or SDR. This is a way of securing currency flows and challenging the world’s main reserve currency, the U.S. dollar.
Japan stands ready to benefit from both its existing relationship with the U.S. and its involvement with China, the EU and other regional agreements.
All that said, the U.S. and Japan still represent about 30 percent of global GDP. With so much in flux worldwide and in Asia, their combined strength and diplomatic ties could prove more fruitful for both countries if translated quickly to real infrastructure building and development projects. These could create long-term demand for knowledge, supplies and jobs.
New Infrastructure Projects for Japan
The last time I was in Tokyo was a week after the U.S. election when I addressed the Tokyo stock exchange. There was much interest from the Japanese as to what the Trump presidency would mean for Japan, particularly in the areas of defense and trade.
Six months into Trump’s administration, that interest remains acute. In February, President Trump addressed military and defense, saying he is committed to “the security of Japan and all areas under its administrative control.”