Donald Trump is infamous for being someone you can ”bait with a tweet.” But can you charm with a tweet? Shinzo Abe is about to find out.
The Japanese prime minister wants a “tweetable” figure of planned investment in the US for when he and Trump hit the links at Mar-a-Lago on Friday, reports the Financial Times (paywall).
To tally up a sufficiently tweet-ready number, Abe has been hounding Japanese companies and investors to divulge any plans for US investment, says the FT, and pushing public investment institutions to pledge financing toward US infrastructure projects. His bet is a fair one, given Trump’s history of tweeting about inbound corporate investment.
Expect Abe to serve up something similarly tweet-friendly. Anonymous Japanese officials say the PM will unveil the “US-Japan Growth and Employment Initiative,” a “five-pronged program” designed to create 700,000 US jobs and new opportunities worth $450 billion over the next 10 years, according to the Wall Street Journal (paywall).
It’s no mystery why Abe will be sweating through his golf gloves tomorrow. Japan’s trade policies were a bugbear of the Trump’s during his campaign. Since taking office, Trump has continued to rail against what he sees as Japan’s unfair practices, particularly in the auto sector.
In 2016, Japan ran a trade surplus for the first time since the 2011 tsunami (which upped its reliance on imported energy). However, its gaping trade surplus with the US, boosted in large part by rising car and auto parts, never disappeared.
Last year, Japan sold $68.9 billion more goods to Americans than it bought from them; the surplus in Japanese car and auto part exports alone contributed $40 billion to that gap. (In yen terms, however, mid-year strengthening of Japan’s currency shrank its net exports somewhat.)
The trade data is but another sign of what Trump has been arguing for a while—that Japan’s chronic undervaluing of its currency benefits its exports at the expense of US workers.
Of course, $450 billion worth of Japanese investment will probably play well in the White House (and, very likely, on Twitter). But will it actually close the trade deficit and boost American wealth? Not necessarily, says Robert Scott of the Economic Policy Institute, a left-leaning non-profit research group.
“This story seems to me to cry out, ‘beware foreign leaders bearing gifts,’” he says.
First off, foreign investment isn’t always good. Money that comes in from abroad drives up the value of the dollar. Since that makes US exports relatively more expensive, it risks putting the Americans who make those exported goods out of work. This phenomenon can sometimes be hard to notice because foreign investment often flows into unproductive assets—things like real estate or US government bonds. These assets don’t help America generate the long-term cash flow to make those investments worthwhile. But, say, the construction boom they fuel in the meantime masks that fact.
Foreign spending on factories in the US, on the other hand, would seem pretty valuable—and Abe will surely be including some of these in his announcement.
But some of these investments that might look good in a tweet won’t help close the trade gap—and that could actually offset the benefit of jobs created, says Scott. According to his research, foreign investment in the US often leads to growing trade deficits and job losses.
In consultant speak, the key appeal of investing abroad is “gaining market access”—the ability to sell goods in regions you couldn’t before. With the world’s biggest middle class, the US is the crown jewel of markets to which to gain access. For Japan in the early 1990s, its access to US consumers was in jeopardy thanks to the Clinton administration’s accusing it of unfair trade practices—particularly concerning autos and auto parts. Facing the threat of losing their access to American drivers, Japanese car companies set up factories in the US instead.
This move created jobs. These days, Japanese auto companies directly employ nearly 90,000 workers in America, according to the Japan Automobile Manufacturers Association, an industry group that promotes Japanese car companies in the US. Nearly three-quarters of Japanese-brand autos that American buy are built in North America, mostly the US.
But the benefit to American workers was less than meets the eye. A lot of the new Japanese factories built in the US involve assembly, says EPI’s Scott—the least labor-intensive part of manufacturing. The element of automaking with the biggest labor content is car parts—engines and transmissions, for instance. Though US-based Japanese factories source some of their parts from US companies, they also tend to import way more from Japan and other parts of Asia than American carmakers. But thanks to US-based production—which lets them price cars slightly lower than if the cars had been imported—Japanese-brand cars have taken more and more market share from domestic competitors, claiming around 40% as of 2012 (pdf).
“If you’re just hiring people to bolt [cars] together in Ohio or wherever and shipping parts here from Japan, that supports more jobs in Japan or elsewhere in Asia, through subcontracting in China and Korea,” says Scott. “That costs jobs in the US, by displacing domestic products that would have employed a much larger share of the workforce.”
Of course, the investments Abe is furiously totting up to present to Trump might well be focused on higher-value or more labor-intensive operations than assembly factories, or in otherwise boosting US productivity. To be fair to Abe, the proposal reported by the WSJ involves cooperating on robotics and artificial intelligence, which could well help juice America’s stalled productivity.
But Trump might want to keep as close an eye on the natures of these proposed investments as on his putting game. In the increasingly mercantilist global trade environment, even investments that seem to put “America first,” sometimes don’t.