3 steps to a winning G-20 for Trump and Japan's Abe

3 steps to a winning G-20 for Trump and Japan's Abe
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This month’s Group of 20 (G-20) meeting in Osaka, Japan could be a welcome turning point for President TrumpDonald John TrumpLawmakers prep ahead of impeachment hearing Democrats gear up for high-stakes Judiciary hearing Warren says she made almost M from legal work over past three decades MORE and Japanese Prime Minister Abe. Having failed to strike an agreement at their recent summit, both leaders face intense pressure to deliver a “win.” 

Compromise and accommodation may be quaint notions nowadays, but to Trump and Abe, they represent the best opportunities for leaving the G-20 meeting with something worthwhile to show for it.

Japan was an economic juggernaut 30 years ago. Having suffered from decades of stagnation, economic growth under Abe remains tepid despite the prime minister’s well-designed regulatory reforms and other long-overdue measures to reinvigorate the Japanese economy. 

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Much of Japan’s problem is demographic; it’s difficult to produce strong and sustained economic growth with an elderly and shrinking population. That said, Japan can do more to grow its economy.

Economic growth results when a country expands its labor force and provides that labor with the training and tools to be productive. Government policies that inhibit labor supply growth, or that undermine productivity, are detrimental to economic growth. Accordingly, repealing those policies would boost growth.

Step 1: Trump and Abe can boost long-term economic growth for both the U.S. and Japan by radically lowering tariff and non-tariff trade barriers. Publicly committing at the G-20 to the ratification of a U.S.-Japan Free Trade Agreement within two years would give both Trump and Abe unambiguous wins and, perhaps more importantly, provide additional leverage to both countries in their trade dealings with the rest of the world. 

For that to happen, both countries need to be more accommodating than ever before. The Japanese agricultural and U.S. automotive sectors, long sticking points in trade negotiations, are ripe for a healthy dose of competition.  

Call it the “zero solution:” zero tariffs on U.S. agriculture and autos paired with zero tariffs on Japanese agriculture and autos. 

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Step 2: Prime Minister Abe should announce a fundamental shift in Japan’s approach to economic growth:

  • Less government planning, more private innovation;
  • less regulation and fewer subsidies;
  • more freedom to hire and fire employees as needed; 
  • less government spending;
  • lower taxes on everything; and
  • most importantly, far more emphasis on policies to coax workers into the labor force and to arm them with the training and tools to be productive. 

Japanese governments spent decades chasing economic growth with deficit spending on infrastructure and public-sector projects. The results have been worse than disappointing. Since 1992, Japan’s economy has grown by less than 1 percent per year on average. 

Consequently, Japanese economic growth rates lagged the United States for all but two years since 1992.

Because Japan’s debt has grown while its economy has not, Japan’s gross debt has exploded to more than 250 percent of GDP. By comparison, gross U.S. federal debt — while still too high — totals only somewhat more than 100 percent of GDP.

Step 3: President Trump is (rightly) encouraging America’s international allies to shoulder more of the burden of our common defense.

Were Prime Minister Abe to commit to accelerating Japan’s planned increase in defense spending — from 0.9 percent of GDP in 2017 to 1.3 percent or more by 2024 — and were President Trump to reiterate the centrality of the U.S.-Japanese alliance to international security, both leaders could leave the G-20 as undeniable winners. 

It is said a journey of a thousand miles begins with a single step. But, with three single steps, President Trump and Prime Minister Abe can dominate the news coming out of the upcoming G-20 summit and demonstrate to the world that the U.S. and Japan are great together again.

James Carter served as the head of tax policy implementation on President Trump’s transition team. Previously, he was a deputy assistant secretary of the Treasury and deputy undersecretary of labor under President George W. Bush. Mieko Nakabayashi is a former member of the Japanese national legislature and currently a professor at the School of Social Sciences, Waseda University, Tokyo.