My Vision No.29
2017.5

Trumponomics and Japan
A little more than three months have passed since the advent of the Trump administration. What
will the new administration’s “America First” focus bring? Will the US relinquish its previous roleas the global leader? Even now, hope and anxiety remain mixed both within the US and globally.
Hopes have been high that the administration would adopt growth-oriented economic policies, but
at present the concrete policy direction remains unclear. How should we think about“Trumponomics”? And how should Japan respond? This issue of My Vision considers thesequestions.

About this Issue
What will “America First” bring?
– The realization of economic growth is not a certainty
Yuri Okina
NIRA Executive Vice President,
Vice Chairman of the Japan Research Institute, LimitedExpert Opinions
Trumponomics and Japan
How will Trumponomics change US policy?
And what effect will these changes have on Japan?
We asked a group of experts for their opinions regarding President Trump’s policies and their effects,
and how Japan should respond.
Interview period: January – February, 2017

How Donald J. Trump could promote long- The details of economic dialogue must be
term economic growth
made public

Glenn Hubbard

Hiroshi Yoshikawa

Dean and Russell L. Carson Professor of Financeand Economics at Columbia Business School

Professor, Faculty of Economics, Rissho University

International trade policy in the Trump era

The effect of the advent of Trump on energy
and environmental policy

Fukunari Kimura

Takeo Kikkawa

Professor, Faculty of Economics, Keio University

Professor, Graduate School of Innovation Studies,Tokyo University of Science“America First” is an opportunity for Japan

Yukio Okamoto
President, Okamoto Associates, Inc.

This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5
About this Issue

What will “America First” bring?
–The realization of economic growth is not a certainty
Expectations on Donald Trump’s economic policy are high, but theoutcomes remain an unknown quantity
A little over three months have passed since the advent of the
Trump administration. Since President Trump’s inauguration,a variety of information has been published in quick succession,
but no matter how one considers it, “America First” appears tobe the distinctive policy characteristic that sets Mr. Trump

Yuri Okina
NIRA Executive Vice President,
Vice Chairman of the Japan
Research Institute, Limited

apart from previous presidents. This stance has been expressedin the policies propounded by a sequence of Executive Orders
issued rapidly following the inauguration, for example
concerning the building of a wall on the Mexican border andrestrictions on the entry of refugees and migrants to the US.

These policies place the priority on ensuring employment for US workers, but the stance of the
Trump administration offers cause for concern over the fragmentation of a society previously
known as a “melting pot.” At the same time, there is a strong expectation that Trump will adopt
growth-oriented economic policies; consumer and business sentiment is improving, share values
have increased, and the dollar, while subsequently weakening, became stronger for a period.
Viewed from the perspective of Japan, the meeting between the leaders of the two nations in
February 2017 offered, for the present, a “soft landing” for Japan-US relations. However, itremains necessary to consider how Japan should respond to an America of which it cannot becertain, and what international role the nation should adopt.
In this issue of My Vision, we have therefore sought opinions from a group of experts, based on
the perspectives of their fields of specialization, as to what effect the Trump administration’s
economic policy, so-called “Trumponomics,” will have on the US and world economies, and how
Japan should respond.
Professor Glenn Hubbard, who served as the Chairman of the U.S. Council of Economic Advisers
under President George W. Bush, stresses tax reform and the easing of regulations in order toincrease productivity, and the provision of support for employment, as policies that will have apositive effect on economic growth.
By effecting these policies, the Trump administration can be seen to have the intention ofreinvigorating areas such as finance and energy-related industries, which were significantly
affected by the strengthening of regulations during the Obama era, and, further, of conferring
benefits on a manufacturing industry that has lost export competitiveness and on the middle classthrough tax reductions. The revision of Obamacare and large-scale (as much as one trillion dollars)
infrastructure investment have also been raised as key policies. As Professor Hubbard points out,
if, rather than instituting short-term policies, Mr. Trump is able to tackle long-term structuralproblems head-on, it will be possible to maintain expectations towards growth in the US.
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5
However, it is still unknown to what degree many of these policies will be realized following
their debate by the Republican Congress. There is also a strong possibility that even if Trump’s
policies are passed by Congress, it will take time for their effects to become apparent. With regard
also to the monetary policy of the Federal Reserve Board, which has a significant effect on Japan’slong-term interest rates and exchange rate, it is likely that the FRB will decide the pace of interest
rate increases while determining how the effects of the Trump administration’s policies are
manifesting themselves.
The policies of the Trump administration also attract numerous skeptical perspectives. Viewing
the IT industry that is currently driving the US economy as the product of a unique American
ecosystem generated by the fact that the nation has attracted large numbers of talented
immigrants, Professor Hiroshi Yoshikawa raises fundamental doubts regarding the “America
First” concept. Professor Yoshikawa also questions Donald Trump’s awareness of the current
status of the US economy. Offering an important perspective on the limitations of Trumponomics,
he points out that the US economy was already recovering, that government expenditure should
not be the centerpiece of economic policy, and that the effect of tax cuts in reinvigorating the
economy is doubtful.
Changes in trade policy and reform of the tax system, for example the introduction of borderadjustment measures, can be considered to be economic policies that epitomize the “America First”
concept, but whether these measures are even feasible, and the fact that protectionist policies may
produce unwanted side effects, is also a cause for concern.
In the area of trade policy, President Trump announced the withdrawal of the US from theTrans-Pacific Partnership (TPP) soon after his inauguration, and has also proposed a direction for
the revision of the North American Free Trade Agreement (NAFTA). In addition, as Professor
Fukunari Kimura points out, we must bear in mind the possibility that the movement towards
the introduction to the company tax system of border adjustment measures that would benefit
American export industries may violate the system of trade rules with the World Trade
Organization (WTO) at its center, inviting retaliation from affected countries and producing anegative effect on the world economy.
The transformation of US energy and environmental policy also offers cause for concern in
relation to the long-term growth of the world economy. It was predicted that the Donald Trumpadministration would adopt a passive stance in relation to global warming; the actual effect of theadvent of the administration has been to diminish the impetus towards implementation of theParis Agreement and create fears of a slowing of the pace of international efforts to addressenvironmental problems. Professor Takeo Kikkawa points out that the US shale gas revolution
has reduced the price of natural gas, and offers the persuasive opinion that as long as this situation
continues, the damage to the Paris Agreement will be limited.
Overall, there are significant uncertainties surrounding President Trump’s protectionist policies,
and the potential for the realization of tax cuts and the possible effects of policies involving largescale government spending are also unclear. It is highly possible that unless President Trump
makes fully-fledged efforts to address essential long-term structural issues, economic growthunder the administration will not match the initial expectations of the market. It will be essential
to prudently monitor future policy developments.
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5
Japan’s role in protecting the international public good
How, then, should Japan respond to a changing America? Geopolitical risk has ratcheted up anotch, and uncertainty on the diplomatic front is increasing. Yukio Okamoto emphasizes thatprecisely such a juncture presents an opportunity for Japan to expand its frontiers and play a rolein protecting the international public good.
It will be necessary for Japan to call for cooperation from other nations including the US, tocarefully analyze the international situation, and to make a greater international contribution toregimes of free trade, the rule of law and environmental protection. The view that the internationalrole that Japan should uphold is increasing is shared by most of the experts interviewed for thisissue. The February meeting between the leaders of Japan and the US established a new economic
dialogue. What will be required of the Japanese government will be to engage the US in close andstrategic dialogue while never wavering in its commitment to the logic of free trade and investment.

This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5Expert Opinions

How Donald J. Trump could promote long-term
economic growth
The sanguine response of equity markets to Donald Trump’s
election makes sense if his presidency heralds a pro-growth policy,
but it also lays bare steps the new administration and its economic
team need to take to justify that optimism.
One issue should take precedence over the others: The creation ofbuilding blocks for restarting economic growth. Resetting
expectations for long-term growth requires policies that enhance
productivity growth and support work. Two building blocks to raise
productivity are tax reform and regulatory reform. Tax reform can
Glenn Hubbard
raise investment and productivity by significantly reducing marginal
Dean and Russell L. Carson
tax rates on business income, while broadening the tax base.
Professor of Finance andRegulatory reform is a second building block for growth by
Economics at Columbia
weakening impediments to investment in energy and utilities, while
Business School
overhauling financial regulation to improve credit availability forsmall and midsize firms.
Work is vital for growth, incomes and social dignity. Tax reform is a core element here, too. These
additional building blocks provide the broader support for work that is needed economically. First,
market-based health care reforms can slow the rate of growth of health care costs. Second, we should
strengthen substantially the earned-income tax credit for childless workers to encourage and support
entry-level work and the earnings-building skills that work provides. Third, current spending on
unwieldy federal job training programs can be directed toward personal re-employment accounts forincome support and enhanced personalized training for individuals.
At the same time, a well-structured infrastructure program can augment aggregate demand as
expectations for growth are reset, while bolstering productivity over time. But to do so, it needs
certain elements. First, it should be a long-term commitment. Second, an infrastructure program
should be a partnership, bankrolled by federal, state, local and also private funds, with the mix
depending on the project.
While constructive in its early strong response to the financial crisis, the Federal Reserve has been
depended upon too much by a government not willing to tackle bold reforms. An early emphasis on
growth by the Trump administration will mean closing the door on failed efforts at stimulus andoverreliance on monetary policy. An emphasis on short-term policy has allowed the neglect of long-term
structural problems that have held back growth and aggravated economic anxiety for many households
and business people.
Now, the right building blocks, action and communication can sustain optimism and generate higher
incomes and greater opportunity. Trying to accomplish a much broader agenda than a focus on growthrisks loss of policy focus and clarity of the economic message to the public.
Professor Hubbard is a prominent American economist. He received his Ph.D. in economics from Harvard University,and has taught at Columbia University since 1988. He also serves on the Economic Advisory Panel of the Federal Reserve
Bank of New York. From 2001 until 2003, Professor Hubbard was Chairman of the U.S. Council of Economic Advisers
under President George W. Bush, and was involved in the design of the Bush tax cut in 2003. A specialist in publicfinance, macroeconomics, and industrial organization, Professor Hubbard is the author of numerous books and papers,
and has co-authored works including BALANCE: Why do great powers lose it? How can America regain it?
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5Expert Opinions

The details of economic dialogue must be madepublicFiscal stimulus is the centerpiece of current US economic policy.
President Trump seems to believe that the US economy isstruggling, but in fact the economy at hand is coming good.
Housing prices are approaching their level prior to the subprime
shock, prompting the economist Robert J. Shiller to speak of signsof a bubble. The FRB commenced raising interest rates at the endof 2016. The issue of aging infrastructure remains, as evidenced forexample by the Minnesota bridge collapse, but the appropriate
amount of expenditure on public works must be judged on the basis
Hiroshi Yoshikawaof the nation’s macroeconomic status.
Professor,
The effect of tax reductions in invigorating the economy is also
Faculty of Economics,
doubtful. The international competitiveness of US manufacturing
Rissho University
industry did not decline as a result of high corporate taxes, andreducing tax rates now is unlikely to reinvigorate manufacturing.
Google, Amazon, and the other IT companies that are driving the US economy are products of thenation’s corporate ecosystem, not the result of government policy. In this sense, Trump’s cry of“America First” is extremely ill-considered.
Against this background, in their first meeting as leaders, Prime Minister Abe and President
Trump agreed to establish a new economic dialogue between the US and Japan. If the Trumpadministration continues to project a sense of instability, it is predicted that the effect on the economy
will be negative. And if this is the case, it is likely that dialogues will see Japan being criticized for
inducing a weak yen.
While the two nations have launched past joint measures such as the Japan-U.S. Structural
Impediments Initiative, the international cooperation demanded by the US is not a boon for Japan.
Negotiations between the two countries have often been based on misreadings of the facts, and havetended to lead to ill-judged policy. Looking back on the past, it is clear that protectionism has not beena solution to problems.
The particular concern, however, is that Trump will attempt to bargain in the areas of fiscal policy
and economic problems using the security relationship as a bargaining chip. It may be that Japan’s
exchange rate phobia will be clearly noted, and the exchange rate used as a “hostage” in negotiations.
The exchange rate should be determined by the market; it should not be an item on the agenda innegotiations. From the perspective of avoiding this outcome also, details of the discussions held
during economic dialogues must be made public.
Believing that protectionism has an economic impact on all countries, Professor Yoshikawa maintains a focus on thepolicy transitions occurring in the United States, which has historically been a leading actor in the promotion of free
trade. Professor Yoshikawa took his Ph.D degree from Yale University, and specializes in the study of macroeconomics.
Following positions including an assistant professorship in the Department of Economics of the State University of
New York, he became a professor in The University of Tokyo’s Graduate School of Economics. Professor Yoshikawa
retired in 2016 and took up his present position. He also holds a range of official positions, for example as a member ofthe Ministry of Health, Labour and Welfare’s Social Security Council, and was the former Chairman of the Financial
System Council of the Ministry of Finance.

This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5Expert Opinions

International trade policy in the Trump era
The advent of Donald Trump has exposed not only the US but
also the entire world to great uncertainty.
In East Asia, the first issue is whether we will be able to reach afixed and stable equilibrium on the security front. In connection
with international trade policy also, dramatic changes in the
security system are the greatest area of concern.
We must also take care that the system of international trade
rules with the WTO at its center does not collapse. There is a strong
possibility that the various schemes Mr. Trump has tweeted about,such as introducing high tariffs against countries recording a
Fukunari Kimura
surplus in their trade with the US, introducing a border tax, andProfessor,
Faculty of Economics,
introducing high tariffs in order to build a wall on the border with
Keio University
Mexico, would violate the concession tariff rules and the principle ofnon-discrimination to which the US is committed under the WTO.
Countries falling victim to these policies would probably appeal to the WTO for dispute settlement,
but a judgment would take some years. Failure by the US to withdraw its policies during this period
would no doubt drive the affected country to take countermeasures. If the body of international trade
rules which has been developed up to the present is simply set at nought, it will have a significant
negative impact on the entire world economy.
What will become of regional economic integration? Negotiations may be commenced to revise theNorth American Free Trade Agreement (NAFTA), but what would their aims be? There is no
possibility that the US will return to the Trans-Pacific Partnership (TPP) Agreement over the shortterm, but can the other 11 parties to the agreement commit to a TPP lacking the US? If so requestedby the US, Japan would have no choice but to enter FTA negotiations with the US. What type ofnegotiations should these be? Will the FTA between the EU and Japan be concluded? Many questions
have to be considered.
It is at precisely such a time that we must carry through the logic of free trade and investment. For
example, as was demonstrated by the TPP negotiations, issues such as the scrapping of agriculturalprotections by Japan and unreasonable demands for the sale of American cars must not be negotiatedas an entire package, with consideration only of the cost of political adjustments. Unless we persist inreasonable discussion, we will never be able to push back irrational demands.
We should also work to conclude the Regional Comprehensive Economic Partnership (RCEP)
proposed by ASEAN, and thus announce to the world our intention to continue to advance free tradeand investment within the region. While we will continue to negotiate those areas on which wecannot reach agreement immediately, it is now high time to move rapidly towards an early conclusionof the RCEP.
Professor Kimura studies international production and distribution networks from a variety of theoretical, empirical,
and policy perspectives, and stresses the importance of mega-FTA. His areas of specialization are international tradeand development economics. Professor Kimura took his Ph.D. in economics from the University of Wisconsin-Madison,and held positions as an assistant professor in the Department of Economics of the State University of New York andas an associate professor in Keio University’s Faculty of Economics before taking up his present position in 2000. Since
2008, he has also served as the Chief Economist of the Economic Research Institute for ASEAN and East Asia (ERIA).
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5Expert Opinions

The effect of the advent of Trump on energy andenvironmental policy
What effect will the advent of President Trump have on energy andenvironmental policy? I would like to focus on two points.
The first of these is a negative effect on the Paris Agreement, aninternational framework for action on global warming, which wasconcluded in December 2015 and took effect in November 2016. The
US and China are the world’s major emitters of greenhouse gases,
and the advent of an administration that is skeptical towards theidea of global warming itself will undoubtedly have a dampening
effect on the implementation of the agreement.
Takeo Kikkawa
However, what must also be considered here is the cold, hard fact
Professor,that former President Obama’s global warming-related measures,
Graduate School ofwhich appeared to tackle the problem actively, in fact simply
Innovation Studies,reflected energy-related market forces in the US. The shale gas
Tokyo University of Science
revolution the proceeded from the mid-2000s in the US reduced theprice of natural gas, and an anomalous situation took effect in which the price of natural gas became
lower than that of coal. This situation saw thermal power plants change their fuel from coal tonatural gas, and as a result their emissions factors for greenhouse gases, in particular carbon dioxide,
were reduced. Rather than an effect of his own policies, Obama’s contribution to combating global
warming can more correctly be seen as a benefit of this change in the market.
If we accept this, it is unlikely that Trump himself will be able to act independently of energyrelated market forces. No matter how much he advocates the reinvigoration of the coal industry, tothe extent that the shale gas revolution continues and the price of natural gas remains below that ofcoal, he will have a limited effect in doing so. Looked at coolly, then, the damage that the Trump
presidency will do to the Paris agreement will itself be limited.
The second point is the significant effect that the change in US-Russia relations will have on
Japan-Russia energy issues. President Putin’s visit to Japan in December 2016 produced no
discernible outcomes either in the area of territorial issues or of energy cooperation issues. The reason
for this was the fact that the election of Donald Trump changed US-Russia relations dramatically forthe better, and there was a strong possibility that sanctions on Russia would either be lifted or eased.
This meant that Putin had no need to make concessions to Japan in either area. The advent of
President Trump has also cast a shadow over the issue of Japan-Russia energy cooperation.

An economist, Professor Kikkawa studies Japan’s energy industry from a business administration perspective. He
completed coursework in the Graduate School of Economics of the University of Tokyo, and took his present position in2015, after teaching as a professor in Hitotsubashi University’s Graduate School of Commerce and Management, anassistant professor in Aoyama Gakuin University’s College of Economics, and a professor in The University of Tokyo’s
Institute of Social Science. Professor Kikkawa specializes in Japanese business history and energy industry. He is amember of the Ministry of Economy, Trade and Industry’s Advisory Committee for Natural Resources and Energy,
and, as an individual strongly interested in the internationalization of research, he is also working as an official for the
2nd World Congress on Business History to be held in Tokyo in 2020.
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement

My Vision No.29
2017.5Expert Opinions“America First” is an opportunity for Japan
President Donald Trump’s inauguration address was adisappointment. Trump stressed his “America First” direction
exclusively, with no mention of America’s principle of protecting
freedom and democracy. He asserted “the right of all nations to put
their own interests first,” and indicated that America would presenta shining example of this pattern. No previous president has offeredsuch a worrying inauguration address. If these principles arefollowed, our world will become one in which every nations turns its
back on every other. Countries will no longer work to create
Yukio Okamoto
regimes for the international public good – freedom, democracy, thePresident,
rule of law, free trade, the strengthening of fiscal foundations, theOkamoto Associates, Inc.
provision of support to poor nations, the protection of theenvironment – and the world will simply drift.
However, Trump’s speech represents an opportunity for Japan. Japan criticizes “America First,”
but if we consider the matter carefully, we will see that we have long put Japan first. While othernations accept many thousands or tens of thousands of refugees, Japan has been accepting only
several tens. Last year the nation approved the entry of only 26 refugees. And yet discussion in theDiet sought to oppose Trump’s ban on the entry of refugees as unacceptable. This is truly self-serving.
Since its peak in 1997, the overseas development assistance (ODA) provided by the Japanese
government has been almost halved on an initial budget basis. Moreover, because much of the
spending relies on repayments from developing nations, there is little actual fresh government
spending involved. With regard to defense expenses, the ratio of Japan’s spending to GDP places it atnumber 102 in the world. Japan has made the armies of other nations responsible for the risk of
defending its citizens and assets overseas.
Before Japan criticizes America, it is time for the nation to change this stance, and to involve itself
in the world. A world in which Russian and Chinese expansionism is growing, and the role of the US
and Europe is declining. Within this world, Japan’s living space will be limited. Precisely now is thetime for Japan to open up its own path, take up the role of protecting the international public good,and expand its frontiers.
And Japan should call on America to undertake this role together with it. Happily, while America’s
leader may be stubborn and petulant, there are many excellent people in the U.S. Cabinet. The
abilities of the individuals involved in diplomacy and security are quite high. If Japan calls, America
will not refuse. But if Japan fails to do so, then it may sink in a drifting world.

Mr. Okamoto is a diplomatic analyst with a reputation for offering understandable commentary covering a wide scopeand based on an incisive perspective. Following his graduation from Hitotsubashi University’s Faculty of Economics, heentered the Ministry of Foreign Affairs. In 1991, he retired from the Ministry, and established Okamoto Associates,
Inc. the same year. Mr. Okamoto served as a Special Advisor to the Prime Minister in both the Hashimoto and Koizumi
Cabinets. He is extensively involved in giving lectures and offering commentary on television, and in newspapers andmagazines. Mr. Okamoto is a Visiting Professor at Ritsumeikan University, a Specially Appointed Professor at Tohoku
University, and a Senior Fellow of MIT’s Center for International Studies.
This is a translation of a paper originally published in Japanese.NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2017 by National Institute for Research Advancement