Start by Expanding Beyond Trade
Hudson Institute's Japan Chair challenges conventional international relations thinking by integrating a wide range of perspectives toward beyond-the-horizon policy issues. JAPAN Forward is pleased to amplify the voices of its fellows by sharing this report with our readers.
Japan is facing a world suddenly beset by enormous uncertainties. Tokyo didn't ask for this moment, but it should take the embedded opportunity seriously. This is not a time to patiently wait for a return to the old normal. The ancien régime is gone.
Instead, Tokyo should put forward ideas that transcend previous institutional arrangements. While the coming period will be challenging, Japan may never have a better opportunity to press for systemic change.
By most accounts, the conversations between Japanese and American negotiators have been constructive. The US apparently wants to develop a framework agreement, undoubtedly encouraged by the one formulated very quickly with the UK. There is clearly no lack of goodwill between the two countries, and President Donald Trump's participation in the opening dialogue was more than just symbolic. He appreciates the extraordinary importance of the bilateral US-Japan relationship, and while the President takes issue with the merchandise trade imbalance, he and his team see value in creating win-win outcomes across a spectrum of subjects.
Just as "war is too serious a matter to be left to the generals," financial, economic, and geostrategic relationships are too important to be left entirely in the hands of their respective specialists. The American administration isn't content with advancing an agenda within a narrow institutional framework (eg, trade). It is clear — if not clearly articulated — that the White House hopes to change the overarching framework itself.
Trade, national defense, economic security, scientific cooperation, and cross-border investment flows are not just — in its view — stand-alone issues for discussion and negotiation, staffed by the elite inhabitants of exquisitely crafted separate castles, guarded by their own technocrats and autonomous rules. To the Trump administration, these issues are of common interest, require common popular support, derive from common fiscal support, and in some sense, are fungible in the hands of uncommon leadership. National leaders need to acknowledge that they own the totality of these processes and have to deliver a narrative to their home audience that makes sense of the bigger picture.
This is a lot to ask.
Nothing was easy before; now it gets harder. Even narrowly defined, bilateral trade negotiations are never straightforward dialogues that transparently improve all parties' welfare. Can leaders feasibly add national and economic security or other strategic issues to the negotiations?
The downside risks are easy to envision. If negotiations drag on, the uncertainties and externalities can weigh heavily on growth. That's the most obvious risk, but there is substantial upside risk as well. The current system of multiple, narrow, expert-driven negotiations has drawbacks. The reemergence of global populist politics has been fueled by agitated groups of "losers" who have felt the weight of arrangements made without their input. Reframed properly, complex bilateral negotiations can take the air out of some of that populism.
Both Japan and the US should come to the dialogue with a well mapped out and holistic picture of where they want to land. Further, both sides need to accept a form of negotiation that forgoes the rigid nothing-is-agreed-until-everything-is-agreed approach. Making provisional binding agreements on the path to the full package has to be ok. Because Japan and the US already have high trust and interconnectedness, this can work.
The challenge is getting back to first principles: negotiators need to delineate the must-haves, the nice-to-haves, and the red-line boundaries of multiple policies irrespective of the structure of prior institutional arrangements. Minister of State for Economic Revitalization Ryosei Akazawa (right) and US Treasury Secretary Scott Bessent shake hands before trade talks in Washington, DC. (Pool photo viaKyodo)
Governments are accustomed to framing activities against visible institutional boundaries, typically framed by inherited norms. What this paper contemplates is a set of agreements and arrangements that allow for interplay between formerly walled-off subject areas. Economic security is potentially fungible with investment conditions. Trade is potentially fungible with minimum national security conditions. Intellectual property with direct national security relevance is fungible with employment and consular rules.
When the legacy boundaries are in flux or removed, one can examine bilateral (and multilateral) agreements that would never fit within prior structures.
Here are some specific suggestions for Japan as it formulates what might be called a fungible portfolio of "Japan First" policy proposals:
Start by recognizing the obvious: the institutions of the legacy rules-based international order never rebalanced to reflect the realities of modern Asia, even as the populations, productivity, prosperity, and centrality of Asia to a highly interdependent world unfolded. This can be a moment for rebalancing, and Japan can both host and influence those institutions as they are — and should be — reshaped and refocused. Some of the specific areas where this approach can be operationalized are described below.
The West is home to the largest multilateral financial institutions (eg, the International Monetary Fund and other international financial institutions, or IFIs), the United Nations and its component institutions, the central bank of central banks (the Bank for International Settlements), and the world's largest security and defense entity (the North Atlantic Treaty Organization).
It's time to encourage some of the IFIs to rebase themselves — specifically in Japan. If the US is ready to de-fund critically valuable parts of the UN institutional system, and if Europe's weak growth and financial outlook leave it unwilling or unable to support the pillars of international coordination and dialogue, then IFIs should move to a place where they would be valued and supported and where they can thrive.
Digital tech, biomedical tech, and venture finance would benefit if they had a globally recognized hub in northeast Asia. These three fields are — unsurprisingly — mutually supportive. Institutional support for basic research at key universities and independent research institutes completes the picture.
Japan already has success in all of these areas, but it lacks the scale to act as a gravitational force. As other countries back away from commitments in these areas — for different reasons — Japan can both fill a vacuum and create a global asset. The untapped human capital in East Asia would respond well to a viable opportunity in a nearby time zone.
Becoming a global hub — whether for tech, finance, or any other area that thrives on continuous innovation — depends upon having enough people whose activities create a positive environment for doing more of the same work.
These network effects in innovation are neither static nor mysterious. They require an environment that is conducive to the new, and that can act as a platform upon which innovators can grow and adapt. In other words, becoming a hub mostly requires ensuring that nothing obvious gets in the way. A ruthlessly honest assessment of domestic impediments could benefit both Japan and the US.
Asia in general, and Japan in particular, can be a center for global thought leadership and a stage for communication and dialogue. The think tank ecosystem in Japan is strangely quiet and private. Corporate institutes abound, but in many ways they are sub-scale, narrowly focused, and punching below their weight. This doesn't reflect the quality of the human capital involved, so the issue is structural.
More specifically, policy platforms and high-level regional security gatherings are relatively easy to sponsor, and Japan can afford to promote itself as a premier venue for security-focused institutional thinking. Washington, DC, hosts multiple public and private organizations that focus heavily on security, but these organizations aren't in DC strictly because the US is a dominant power.
The causality goes both ways: the US has been dominant partially because of its convening power, and public dialogue that flows from thought leadership housed in think tanks such as Hudson Institute, the Center for Strategic and International Studies, and others. Tokyo can raise its profile in comparable ways.
The government of Japan has long aspired to reinvigorate Tokyo as a global financial center. Many of us have written on this, been in discussions with government officials, and participated in public events aimed at shining a light on the virtues of bringing more financial headquarters to Tokyo. Working papers with specific proposals abound. Now is the time to make bold moves. Hong Kong is no longer the London of Asia, and Singapore is small and still a long way from the financial capitals of Japan, Korea, and China. If ever there was a good moment to announce policy measures that could entice more financial firms to bring their Asian HQs to Japan, that time is today.
Japan occupies an indispensable place in the global supply chain for high-value-added goods, including products that are critical to the US defense supply chain. Tariffs and disruptions to global trading arrangements won't change this in the next few years, if ever. Japan can use this advantage as it thinks ahead to the give-and-take across other areas for negotiation.
Factories, engineers, and expertise aren't readily mobile across national borders, and most importantly, human-centric intellectual property isn't either. Ask anyone involved in manufacturing high-value-added goods, and you will hear a story that belies political talk of significant tech-heavy reshoring.
The reality is that it's a generational challenge. In the meantime, high-trust nations can co-develop pathways to a better balance across multiple fields. Japan can take the lead with the US and develop a framework in which both countries get more of what they want.
Time is of the essence, and there's no reason for Japan to be unambitious. The pathway to a trade-plus deal will have ups and downs, crises and breakthroughs. It's unlikely to happen quickly, even if all parties aspire to a win-win outcome. The countries that bring a full and multidimensional agenda to the dialogue early will have a range of tools that may be valuable as the process unfolds. Japan brings more to the table than almost any other single country.
None of this is going to be easy, but Japan is well-positioned to bring positive proposals to the negotiating table. The US administration knows what's at stake and should react well to proposals — including multidimensional ideas — that Japan and America can both describe as wins. A Good First Step: Analyzing the Trump-Ishiba Summit
Author: Mark Siegel
Mark Siegel is an adjunct fellow at Hudson Institute. He is also managing partner of Chancellors Point Partners LLC.
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