Dramatic policy changes put forward by several key Canadian trading partners have the potential for eroding international trade and a very volatile global economy. These global trends, the direct result of new pressures from voters, may require a more activist government role for countries like Canada and organizations such as the G20 to maneuver these choppier waters.
No country exemplifies this great change more sharply than Japan. Within days of assuming power in the December, hawkish Prime Minister Shinzo Abe presented an ultimatum to the Bank of Japan: adopt a two-per-cent inflation target and engage in massive buying of government bonds at its January board meeting, or face legal change in the Diet that would take away its independence.
This action by the new Japanese government forms the first plank of the so-called “Abenomics” approach to economic management. Packaged a massive US$ 116-Billion stimulus package and aimed at creating 600,000 jobs and lifting GDP growth by two per cent, this new spending focuses on construction and infrastructure, with green energy and security components, including more coast guard ships to muscle up against China.
Two points are crucial about this change. First, Abenomics has proved popular with a public desperate for an alternative to the twin shoals of liberal reforms and fiscal retrenchment. Second, Abenomics is primarily domestically focused and takes a cautious approach to free trade. On the Pacific side, Abe has postponed any commitment toward joining the Trans-Pacific Partnership (TPP), despite his strong pro-US stance. This is in light of surveys showing public skepticism toward US-led free trade and over 80 per cent of the members of his own LDP caucus opposed to the TPP.
Abe’s approach to international trade will worry Canada, given our government’s strong interest in the TPP and Japan’s crucial role in the entity. There is also the possibility that Abe will slow down Japan-Canada free trade agreement negotiations. On the East Asian side, Abe is cool on further integration with China (and even Korea), despite the fact that Chinese growth has pulled Japanese exports over the last few years. Abe is taking a security-driven stance on economic integration.
Japan is but one of several key trading partners key countries that are intervening more actively in trade politics, monetary and currency politics, and bond markets as a result of domestic pressures, including the US and Europe. If this increasingly internal-looking approach is not matched by a greater global coordination, we could see a serious erosion of globalization.
Canada cannot be complacent and our government has a new, greater role to play, at home and globally. Ottawa may need to face a world with more managed currencies, more direct interventions into global markets, and less momentum for free trade. In this environment, more direct action may be needed in infrastructure development and in monetary policy. What is also needed is more robust use of the G20, the G8, APEC, and other international bodies to coordinate the unfolding economic policies and avoid a gradual unraveling of the global order.
Yves Tiberghien is the Director, Institute of Asian Research, at the University of British Columbia and Senior Fellow with the Asia Pacific Foundation of Canada.
This piece was first published in the Vancouver Sun on January 24, 2013.
Learn more at UBC’s Institute of Asian Research events. This is part of a series on the great 2013 leadership transition in East Asia. It will be followed by events on Korea’s election in February and one on China’s transition in March. Event details: www.iar.ubc.ca.