COVERLEAD

White Paper on International
Economy & Trade 2023
By Naoyuki Haraoka
METI’s White Paper on International Economy & Trade 2023
highlights economic security against the background of increasing
geopolitical risks. One key to security must be to strengthen thenational economy so as to cope with the coercive trade policies ofsuperpower nations. It is important for Japan to position itself as
strategically indispensable as a nation. This could be related to thisWhite Paper’s second main point, namely the need for Japan toboost its earning competency against the background of itsincreasing trade deficit.
How to strengthen a national economy is an issue not only forJapan but also for the smaller countries and middle powers in theworld. Otherwise, their significance could decrease under thethreat of coercive policies of superpowers while a rules-based
trade and security regime is in crisis due to a malfunctioning
World Trade Organization and United Nations.
To strengthen its economy, Japan needs to implement
numerous reforms, including labor market reform to boost labormobility to encourage the flow of workers into sectors with highgrowth potential, increasing investment in human resources,reforming universities into more innovation-friendly ones,
implementing policies to stop depopulation by raising the fertility
rates, and accepting more highly skilled foreign labor. Many ofthese policies would require more government expenditure.
Meanwhile, Japan needs to increase its fiscal expenditure onsocial welfare to cope with its rapidly aging society; and against
the background of increasing geopolitical risks, it also needs toincrease its defense spending. So Japanese public finances,already suffering from tremendous amounts of debt, would suffer
even more in the coming years. Given an extremely high amount offiscal debt, if the continuing trade deficit partly caused by energy
and food price hikes due to the Ukraine war turns the current

2 Japan SPOTLIGHT • September / October 2023

balance into a deficit, Japan will be exposed to a high risk of a fallin the price of national bonds and a drastic hike in interest rates,
which would put the whole economy into an unprecedented crisis
that could lead to national bankruptcy. Most small and middle
powers in the developed world could share this risk with Japan.
Thus, the global economy is at a highly unstable point. Eachnation will doubtless develop its own strategy to minimize its
government deficit or trade deficit. What we need is an industrial
policy to increase our earning capacity and reduce our trade or
current deficit, but such a policy requires government expenditure
as well. Sensible expenditure that restrains a government fromissuing more debt but is effective in increasing industrial
competitiveness is what should be pursued. We may have topractice large-scale administrative reforms that can convince
people opposed to tax increases of the inevitability of tax rises,
since remaining with a fiscal deficit even after such decisive
rationalization of expenditure would itself require further tax
increases in order to clear it.
The leadership of politicians to achieve these reforms and tax
hikes is critical. In developed nations today, how democracy works
in achieving the emergence of highly competent politicians could
be key to the country’s potential in the future. This is aspontaneous thought provoked by this White Paper. In achieving
this goal, trust is the key. Nations where political leaders are nottrusted by people could face the danger of collapse.
Please enjoy reading the White Paper while considering whether
this statement is relevant or not.
Naoyuki Haraoka is editor-in-chief of Japan SPOTLIGHT & executive
managing director of the Japan Economic Foundation (JEF).

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