Too Little, Too Late for Japan

At Japan Times Yoichi Funabashi crafts a strategy for Japan reacting to an increasingly bumptious China:

First, maintain and strengthen our commitment to an open and liberal international order. For that purpose, reform the World Trade Organization. In the near future, even the U.S. will come to find it difficult to restrain an all-too-powerful China. If the U.S. ignores the WTO, an even more powerful China is certain to ignore the WTO as well. The WTO must overhaul its guidelines concerning subsidies, industrial policy and cyberspace. Moreover, both Japan and the U.S. must learn to make better use of the WTO.

Next, we can advance the regional integration and liberalization of trade and investment in the Asia-Pacific region by spreading the standards agreed on in the Trans-Pacific Partnership deal surrounding norms and rules. Japan must assist with the regional integration of the Association of Southeast Asian Nations members and the construction of a regional architecture that includes India and adheres to the principles of an “open and liberal international order.”

Finally, Japan can use the momentum of the current economic dialogue with the U.S. as a form of “gaiatsu” (foreign pressure) for promoting domestic structural reforms — the “third arrow” of Abenomics. After all, we should not forget that utilizing gaiatsu to achieve reform and liberalization has long been a Japanese specialty.

I think this is a sure instance of too little, too late. The Chinese very clearly view multi-lateral trade agreements in general and the World Trade Organization in particular in a strictly instrumental fashion. They’ll enforce them when doing so furthers their goals and ignore them otherwise. The reality is that China doesn’t have the civil infrastructure, in particular the robust system of civil law, to live up to the obligations it assumed when it joined the WTO and it certainly has neither the inclination nor the ability to enforce intellectual property law, the U. S.’s key trade goal (foolishly in my opinion). You can’t fight Chinese mercantilism with trade organizations of which China is a member.

As far as the TPP goes, the U. S. simply can’t tolerate two major economies pursuing mercantilist policies against it let alone four or more of them. China, Japan, and Germany are forcing the U. S. into a more mercantilist direction for reasons of political if not economic survival.