COVER STORY • Role of Business in New Global Governance • 5JInterview with Teruo Asada, former Chairman & Executive Advisor of Marubeni Corporation

apanese Business Leader Is
Cautiously Optimistic About
the Global Economy

By Japan SPOTLIGHT
Think tank people are concerned about the possible harmful impact of the US-China tech cold war if it isprolonged on the world economy and trade. How does the business world view this? While think tankviews are theoretical and have a macroscopic perspective, businesses tend to be more practical and focus
on tangible effects.
Teruo Asada, former chairman and executive advisor of Marubeni Corporation, one of the largest
Japanese trading companies, kindly spared time to respond to our questions on this issue. The views of a
big trading company’s representative are of great interest given the current turmoil in global trade and thepossible impact upon global supply chains.
(Interviewed on Dec. 13, 2019)

Current State of the Global
Economyof the chairman of the British Market Council, a
private organization aimed at promoting
Japanese imports from the UK and supporting
Japanese companies interested in setting up
JS: I suspect that a prolonged
offices or factories in the UK. I talked with
US-China tech cold war will have aopinion leaders there and I was impressed by thestrong negative impact on the world
robustness of the UK economy. It will not be ineconomy. Many economists think the
any serious difficulty due to whatever may
US economy is still in an
happen after Brexit.
expansionary stage at this moment,
What I am most worried about is the Japanese
but I think a prolonged trade war
economy. Japanese interest rates have already
would seriously harm the US
reached below zero and there will be little room
economy, the Chinese economy andto lift the economy by monetary policy. Oureventually the global economy. Whatpublic finances are in the worst condition, withdo you think about the outlook for thetremendous accumulated debt. There is also very
world economy if this trade war
Teruo Asada
little room for stimulating the economy by fiscal
continues?
policy. It is certainly true that the Japanese economy has been
enjoying its longest expansion in the postwar period, lasting many
Asada: In the light of the current business situation, I do not thinkmonths. But this can be considered as a consequence of thethe global economy will fall into a recession, as it did after thecontinued monetary easing policy so far and not of a consolidated
Lehman Shock in 2008, though it may slow down to a certain extent.
growth strategy. I am particularly concerned about the delayed
I believe in the strength of the US economy. The US-China trade war
implementation of a growth strategy for raising industrial or national
would strengthen the need for restructuring global supply chains,competitiveness by structural reform, compared with the rest of thewhich could lead to rising production costs. Tariffs are also rising,world.
and developed nations are suffering from a labor shortage. Under
Overall, I think the world economy, including emerging economies
such circumstances, in 2020 world economic growth will be slightly
and those of ASEAN nations, will not get into a serious recession,
lower than in 2018 or 2019.
although there could be a tentative slowdown in 2020.
The US economy and Chinese economy will be negatively affectedby the trade war. In particular, the Chinese economy would fall into
difficulty due to a continuous decline in exports for the past two
Japanese Business Suffering from Poweryears. However, both the United States and China can still afford toBased International Politics
implement active monetary and fiscal policy to stimulate theireconomies. I visited the United Kingdom last December just before
JS: I guess there might be cases where Japanesethe general election that determined the direction of Brexit on behalfbusiness interests would be seriously harmed in
24 Japan SPOTLIGHT • March / April 2020

https://www.jef.or.jp/journal/

COVER STORY 5

power-based global politics without rules. What do
you think about this possibility?
Asada: I am not worried much about it. I participated in the Annual
Joint Meeting held by the Japan-US Southeast Association andSoutheast US-Japan Association as a chairman of the Japan side in
October 2019 in the state of Georgia. This meeting regularly attracts
the attendance of state governors and business leaders from theseven southeastern states in the US (Alabama, Florida, Georgia,Mississippi, North Carolina, South Carolina, Tennessee) andJapanese business leaders. At the meeting I raised with the sevenstate governors the possibility of Japanese business being negatively
affected by the decision of the Committee on Foreign Investment inthe US (CFIUS) to reject foreign direct investment (FDI) due tonational security concerns.
Many Chinese companies today are finding their FDI in the US
rejected. Our concern is that Japanese business could be involved insuch US-China friction in the future. For example, if a Japanesecompany, in partnering with high-tech Chinese companies, is trying
to invest either in the US or other countries, there would be apossibility of the US opposing it. Particularly in the case of largescale investment either in the US or other nations, I thought there
could be great concern about its being refused by the CFIUS. But,after having talked with the governors, I found it is quite unlikely thatJapanese companies would be involved in any such trouble and theywould neither suffer any serious loss nor would any new business bedifficult to start.
I was also surprised to see in this meeting that the tradeimbalance between the US and Japan was not an issue fordiscussion anymore. The largest bilateral trade deficit of the US is
now with China, followed by Germany and Mexico. Japan comesnext. The US-Japan trade imbalance or trade issues do not mattermuch anymore for the people in the US. There is also the fact thatJapanese FDI in the US has worked well in convincing US states of
its utility and this has lessened trade friction between the two.
Some 1,500 Japanese companies have invested in the sevensoutheastern states and created around 200,000 new jobs there. The
investment balance in those states amounts to more than $40 billion,
while the investment balance overall in the US is around $400 billion.
This is greatly appreciated by local communities and I believe this isthe best example of the win-win relations achieved by the US-Japan
partnership since the 1970s.
As a business person who has worked for a trading company formany years, I believe that business is based upon human relations.
That is an important lesson for us. Having seen such good humanrelations built up between the US and Japan, I think there will be little
risk of Japanese business being hampered by the CFIUS decision,
though the risk is not zero.

Rules-Based Trade Regime
JS: Even with little possibility of Japanese businessbeing affected negatively by power-based
international politics, would it not be better to have arules-based trade regime that ensures free trade andinvestment?
Asada: Yes, but it is difficult. The WTO’s rule-making function has
stopped working and even its dispute settlement mechanism has
been seriously hampered by the lack of a majority among the sevenmembers of its Appellate Body tasked with making a final decisionon the relevancy of the dispute panel report. Can Japan take theinitiative in reconstructing trade and investment rules? I think there
will be a greater role expected of Japan in rule making for IPRs andnational security-related issues. However, I am skeptical about
Japanese leadership in WTO reform or in founding a new trade
regime to replace the WTO. The US is a self-sufficient nation, as it
can provide energy and food necessary for domestic use and survive
even with its markets closed, though that could negatively affect theeconomy in the long run. How can Japan lead the US to a rulesbased global regime?
President Donald Trump is doing well in having China accept atentative agreement to modify its aggressive foreign economic policyby his tough countervailing policy. No other person could haveearned such a gain from China. The US economy is still in good
shape. The trade war is not significantly harming its economy at thismoment.
Meanwhile, Japan is certainly doing well in having concluded therecent trade agreement with the US. I believe these provide goodbilateral rules. But as for global rules, I think it will be questionable
for Japan solely to create them on its own initiative or leadership.
JS: It may be difficult for Japan to create a global trade

regime, but it would be possible to make regional
trade rules like the TPP among Asia-Pacific nations.

Asada: Yes, that is true. Japan’s contribution to mega-regional FTAs
is significant, as shown in the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) which should havebeen even better with the US joining it, the EU-Japan EPA, and thetrade agreement between Japan and the US, as mentioned, whichstays largely within the framework of the CPTPP. Another megaregional FTA, the Regional and Comprehensive Economic
Partnership (RCEP), will be concluded with India’s agreement soon. I
think such regional FTAs can be achieved by Japanese leadership,and taking the initiative in concluding such regional trade rules will
be a crucial role in the future for Japan, but the WTO or otherworldwide trade regimes possibly replacing the WTO will be difficult
to achieve only by a Japanese initiative.
JS: In such rule-making, economics and national

security are increasingly discussed simultaneously.
METI has recently set up an office focusing on theinterrelations between the economy and nationalsecurity. The recent revision of the Foreign Exchangeand Foreign Trade Act in Japan, imposing
restrictions on FDI over possible harm to Japanesenational security, is one example of how economics
and national security are closely related.

Japan SPOTLIGHT • March / April 2020

25

COVER STORY 5

Asada: If national security concerns become too great they wouldpush Japan into a contradictory stance on free trade, which it has
been advocating until now. This could lead to many sanctions and wecannot deny any possibility of the global trade regime movingtowards anti-liberalization. The revision of the Foreign Exchange andForeign Trade Act could also provoke friction between Japan and theinvesting countries, even with a very small amount of FDI. Of course,
Japan should respond to concerns about national security in balancewith economics, as is the trend today. But it is necessary to bear inmind that excessive policy intervention based on concerns overnational security could be disastrous.
JS: Australia and Japan seem to share the concern

about the balance between economics and nationalsecurity and agree that they should be discussedsimultaneously. I think they can be good partners inthis regard. Both nations play a key role in APEC.
APEC could be a good venue for discussing
economics and national security, assuming that theWTO does not work well. It would not enforce any
obligation upon member countries but there would
be peer review pressure on them. This would make iteasy to achieve a consensus among membernations.

Asada: Unfortunately, the US is not paying much attention to APEC.
Trump is not interested in attending multilateral forums, as heprefers bilateral discussions and negotiations. It is certainly a goodvenue for discussion, but I doubt if APEC would be the venue where
new international rules are adopted.

Coping with Other Rising Geopolitical Risks
JS: Besides the US-China tech cold war, there areother geopolitical risks, such as Iran or North Korea.
How does a trading company in Japan like Marubeni
prepare for them?

Asada: Japanese trading companies have been pursuing business
opportunities despite the wide range of geopolitical risks. We havebeen doing business with our partners and clients in close
relationships for a long time under such risks. We would also pursue
business opportunities in other countries and communities with
Chinese companies even with the risks that may entail, if suchbusiness could bring those nations or communities invaluable
benefits.
I believe that trading companies must continue their win-win
business with their partners, while bearing in mind existinggeopolitical risks. Of course, it would be thoughtless to continue
business without any risk management policy. We trading companies
have developed good risk management strategies for each country
based on our knowledge and wisdom acquired from long worldwide
business experience.
When there is any large-scale conflict in the world or a need tothink about specific emerging risks, we rethink and revise such risk
26 Japan SPOTLIGHT • March / April 2020

management strategies on our own. Our company, through such aprocess, has developed our own ranking of country risks andcountry ratings and we define the limits of exposure to transactions
with a specific country based on that ranking. We must also think
about the means of hedging those risks while developing risk
management.
We have been working with Japanese public agencies, such as theJapan Bank for International Cooperation (JBIC), Nippon Export andInvestment Insurance (NEXI) and the Japan International
Cooperation Agency (JICA), in financing our projects for hedging
risk. Also I believe that working with international organizations suchas the Multilateral Investment Guarantee Agency under the World
Bank, which has long experience in Africa, or the IMF in terms of
co-financing would be important in avoiding political and/or credit
risk. Such a risk hedging strategy would be a product of our trading
companies’ wisdom born of our business experience.

Private Business Involvement in RuleMaking on Economics & National Security
JS: In rule-making on economics and national

security, would we need to involve more private
business people’s views in policy discussions andformulation? For example, it is often said that there
are some sensitive technologies which could harm
national security. It might be only private businesses
that could identify exactly what these technologies
are.

Asada: Yes. Having participated in various meetings of advisoryboards to Japanese government ministries, I found there were very
few business people among the members, while there were many
academics and economists. The arguments of the academics andeconomists were too theoretical and conceptual because most ofthem do not have actual business experience so that they are notfully aware of the real problems which businesses face.
I think the Japanese government should create more venues forpolicy discussion with private business people who are engaged in
actual business and knowledgeable about business realities. They
should take full account of those business people’s views in policy
formulation. Not only trading companies but also manufacturing
companies or IT business should be more involved in exchanges ofviews on the economy and business with the policy makers in thegovernment.
I think such dialogue between the government and private sector
in Japan would strengthen the capacity of Japanese policy decision
making and thus encourage Japanese leadership in global
governance. I sincerely hope that such strengthened Japaneseleadership can lead the world economy to better globalization.

Written with the assistance of TapeRewrite Corporation.