Securing bridges

For a country known for its ministers, the most remarkable thing about Japan’s new ministry under the leadership of newly appointed leader Fumio Kishida is that it gets a new finance minister for the first time in nine years.

The departure of Taro Aso, 81-year-old veteran politician, former prime minister and longest-serving finance minister in the country, is a testament to the unusual stability that the Shinzo Abe era has brought back to Japanese rulers.

However, given that Aso appears to have replaced himself with his 68-year-old brother-in-law as the new minister as he ascends to the post of vice president of the Liberal Democratic Party (LDP), there is no way -be not much change here.

The most interesting decision of Prime Minister Fumio Kishida is the appointment of an economic security minister, Takayuki Kobayashi.

So, in a new composition that appears to be more about balancing factions than getting things done, Prime Minister Kishida’s most interesting decision is the appointment of an economic security minister, Takayuki Kobayashi.

While Kishida spoke of an interventionist “new style of Japanese capitalism” at home ahead of the October 31 snap election, Kobayashi will pursue the same abroad, where national security is increasingly globalized. The second youngest minister at 46 in a newly created post, Kobayashi appears to have been given unusual responsibilities. LDP broker Akira Amari said Kobayashi “should be able to give instructions to all ministries and agencies.”

Kobayashi is a Harvard graduate and a former finance ministry official in Washington, but more importantly, he was part of a PLD committee pushing the previous government to legislate on a new economic security strategy.

This will make him a key figure in giving some substance to the much-promised supply chain cooperation between Australia, Japan and India and the “Quad” group’s broader focus with the United States. on issues such as critical minerals and cybersecurity.

Takayuki Kobayashi, new Japanese minister in charge of economic security (Kyodo News via Getty Images)

Japan was at the forefront of the supply chain by redesigning last year with a subsidy program to bring back some manufacturing companies, mostly from China, and Kobayashi is now touting a law that identifies and promotes sensitive technologies, secures infrastructure. fundamentals and strengthen supply chains.

Australia is already well on this path with its critical infrastructure hub and this year’s budget spending for trade diversification and supply chain resilience. However, the government has not clearly responded to Productivity Commission reports warning of overreacting to concerns about supply chain vulnerabilities.

Kobayashi will also become an important new player in the way Japan handles its complex relations with China under the leadership of a new prime minister from a less nationalist wing of the LDP than Abe, but who has been noticeably hawkish on the defense issues in his campaign for the new post. .

Thus, his opening comments on life with Beijing are worth noting:

The relationship with China is extremely important. Japan and China indeed have various problems, but I believe that a stable bilateral relationship is the key to prosperity not only for Sino-Japanese relations, but also for regional and global communities.

From a hole

Australia’s image as little more than a career and a beach when it comes to exports was seriously challenged two years ago when the Center for International Development at Harvard Kennedy School released its latest Atlas of Economic Complexity.

In the bottom half was the ninth richest country in the world in terms of GDP per capita, ranked between Senegal and Pakistan thanks to its narrow export base, the publication noting that Australia had become even less complex in the past. over the past decade.

But now, just in time for the new quest for export diversification to cope with coercive sanctions from China, new research from the International Monetary Fund suggests Australia may not be doing so badly.

Studying what drives export diversification challenges the economic modeling approach commonly used behind measures such as the Atlas of Economic Complexity to identify complex and sophisticated exports. These approaches have often been associated with the idea that interventionist industrial policies are the key to greater export diversification.

Instead, the IMF’s approach looks behind commodity-dependent export baskets in countries like Australia with a natural endowment of resources to see if and how they will avoid the so-called Dutch Syndrome. simply rubbing shoulders with this wealth of resources. As a result, IMF economist Gonzalo Salinas suggests that Australia, New Zealand and Chile have succeeded in diversifying their export base more than one might expect given its resource endowment.

In a counterintuitive conclusion when iron ore, coal and natural gas dominate Australia’s major exports, he argues that these countries have strong policies conducive to diversification that exceed geographically determined expectations and therefore can provide ” diversification models ”.

Indeed, Australia’s deviation from what one might expect given its location far from end markets for sophisticated non-hydrocarbon and mineral (NHM) products is even higher than for diversification models. well known such as South Korea and Malaysia.

Referring to the type of approach taken in the Harvard Atlas, the study argues:

While the Economic Complexity Index (ECI) aims to be an approximation of the productive capacities of an economic system, its sensitivity to commodity factors, unrelated to the productivity of an economy, significantly distorts its accuracy. .

The key argument is that Australia, New Zealand and Chile appear to have succeeded in overcoming their relative lack of proximity to sophisticated export markets by improving what the study calls horizontal policies – education, governance, open trade, etc.

Thus, the centrality of proximity to market for export diversification only increases the importance of improving connectivity through such things as lowering trade barriers, strengthening transport infrastructure, investment in communication technologies and the promotion of technological diffusion, the further a country is from key markets.

This will not fill the immediate void in agricultural exports to China or fall into the minerals industry which this week celebrated how mineral and energy commodities accounted for 69% of export earnings in August, supporting a surplus. record commercial.

But with export diversification, the new government buzzword, from treasurer Josh Frydenberg’s China strategy plus one to the Ministry of Foreign Affairs and Trade’s new Trade and Investment Master Plan with Indonesia, the idea that a good basic economic policy can diversify exports is worth repeating. Or as the IMF document argues:

Diversification strategies focused on strengthening horizontal policies are not only less controversial (than industrial policy interventions) but… constitute the backbone of export diversification.

Trumped

Despite all its promises of a new form of government, the Biden administration’s much-promised Chinese trade policy appears uncomfortably trapped between the old Trump administration and the threat of a new one.

After an in-depth review of Chinese policy over several months, Trade Representative Katherine Tsai’s speech on Monday was billed as providing answers on how the Biden administration would reconcile the Trump tariff deals it inherited with diplomacy. global commitment that it promises.

The reduction in tariffs for some American importers or the attempt to move on to more complex trade issues could be described by Trump Republicans as an abandonment of American workers.

But while she revealed that the United States will be starting new negotiations with China, it mainly appears that she intends to simply pressure China to implement the commitments made in the first. phase of the agreement to purchase US $ 200 billion in additional goods and services from the United States last year and this year. So far, he’s only done about 60 percent of that.

But there were few signs of moving to bigger and longer issues during the second phase of the deal in areas such as regulation, intellectual property and state-owned enterprises.

Dropping the deal, cutting tariffs for some US importers, or trying to move on to more complex trade issues could be described by Trump Republicans as abandoning US workers ahead of next year’s election. . Thus, the caution is not surprising especially since it has now emerged that Joe Biden and Xi Jinping plan to hold a virtual summit before the end of the year.

But China continues to advocate for joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – which would involve the kind of commitments implicit in the second phase of the Trump deal – despite a generally skeptical response, including from the share of new Japan. Prime Minister.

But with the Biden administration showing no interest in reverting to the old Trans-Pacific Partnership or even defending the World Trade Organization in Monday’s speech despite renewed encouragement from Australia and others on these points, the China gets off easily.


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