 And looking to the east, and we're looking from Honolulu, in Honolulu it's 1pm, but in fact we're talking to Japan, we're talking to Steve Zurcher in Japan, and it's not 1pm at all, it's the following day Tuesday in the morning. Steve, what time is it in Kobe, Japan? It is 8am, so at a bright and early start to be on this call today, so we're a little bit ahead of you out here in Japan, and in some regards, certainly when it comes to time. It's 8am in the morning, 8am right now. Steve is a college professor in Kobe, he's also associated with the Shidler College of Business here in Honolulu. And the background photograph we have for you today is the waterfront in Kobe. That's where they have the cows that are fed beer. Have you been doing that? Have you been eating meat from cows fed by beer? Absolutely. There's just a few stories about that, Jake. You know, I'm a professor, I live on a professor's salary, and unfortunately I can't afford the Kobe beef. Oh no. It is quite expensive, it's probably cheaper in Hawaii than it is here in Japan. Interesting. But this is where they raise them, and it's often the backcountry in the hillside, back behind from the waterfront, the picture that you have up there. And that's a major industry for this prefecture, Hyogo, and that's something that they market quite intensively. And it's good. I'll tell you. I really do have it when it comes to celebration. If you don't want to have the beef, you can just have the beer. I know they have beer in Japan. I know that. They do, yeah. Indeed. Anyway, so tell us about your teaching in your school and what you're focusing in on these days. Sure. Yeah, I just started this semester. I teach at Kansai Gaida University. That's in Hirakata. It's a suburban community between Kyoto and Osaka. I've been teaching there for about eight years or so. And I'm teaching an entrepreneurship class. And I'm also teaching a marketing class. And I have one kind of side project. I don't know, Jay, if you're into rugby at all, but the World Cup for rugby will be starting in Japan in just a couple of weeks. Wow. And I've set up an internship program for three of my students to be journalists working at the World Cup matches that are here. There's going to be eight in the Kansai region. And they're going to be doing interviews of the players and then creating very simple quotes that will go out worldwide. So that's an interesting and a one-time only class that I'm working on as well. Okay. And I actually came about with connection with the American Chamber of Commerce, whom I'm associated with as well. Oh, right. Yeah. So speaking of the Chamber of Commerce, you've been active and you've attended talks recently about the subject of our show. And that is U.S. trade policy, trade negotiations in Japan. Can you tell us what's going on? Yeah, sure. So as a vice president of the Kansai region, I'm able to attend periodic meetings up in Tokyo with embassy personnel. And we do kind of a briefing. The Chamber of Commerce in Japan works very collaboratively with the embassy. I also do that with the Osaka Kobe Consulate. So this was last week. And the topic was just what's going on in general in terms of new activities or interesting activities focusing on Japan and a little bit more broader on Asia. So some of the things that we discussed is an upcoming visit by the vice president. This is Vice President Pence. On October 22nd is a national holiday. It's called it Throma Day. So that's the official ascension to Emperor for the New Emperor. He actually has been in that role now for a number of months. Trump came out when he first moved into the New Emperor role. But for this particular day, Pence will be coming out. We also have a bunch of governors that are here in Japan, mostly from the Midwest. And, you know, you can probably understand why Midwest governors are interested in coming to Japan because of the agricultural challenges that they've been facing with the kind of sticky negotiations that's been going on between the United States and China. So just as a background thing, Japan sells manufactured goods like automobiles, especially automobiles to the U.S., and the U.S. sells agricultural products from the Midwest to Japan. That's a big part of our trade relations with Japan, I guess. That is correct. Yeah, so auto is the number one export from Japan to the United States by far, and then agriculture is a huge component of the exports that come from America to Japan. And that particular industry, especially in the Midwest, soybeans in particular has been hammered. I think I read recently that the $10 to $12 billion orders have been taken off the table by China in response to the tariffs that have been placed on Chinese goods coming into the United States by the administration. So they're all looking to Japan to try and increase their orders. And historically, Japan has protected its agricultural industry with tariffs or taxes that are put on the products. That come into Japan. For example, this doesn't apply so much to the United States, but for rice, there's 800% tariff. So any rice that comes into Japan has to pay eight times tax on the price of the product. And the reason for that, of course, is that the rice industry and the farmers there have a very strong relationship with the LDP, the Liberal Democratic Party, which is a party that's been in power most of the time since World War II. So they protect that particular industry. And that's true across a number of other agricultural products. There's pretty high tariffs. Again, this is not unusual. Many, many countries do that. America does it for sugar. The senators from the South, where there's a sugar industry, have convinced the U.S. government to put up tariffs on sugar, so sugar that comes from Brazil and other locations, they said as well. You mentioned that there was a certain... Go ahead. So this leads to the negotiations that I'm sure you've read about that's going on now between Japan and the United States. And it's on a fast track. The United States, Trump in particular, is pushing very hard to conclude a free trade agreement. That's a single agreement between America and Japan on several industrial and agricultural sectors. And if that is concluded, this will be a political victory for Trump in particular, and for the U.S. as well, and for the agricultural industry. So I think that's why the governors are here. They're probably meeting with the Zion members, the congressmen members of Japan, to try and pressure them to accept the terms and conditions that are being proposed by the United States. What are the terms and conditions, Steve? What are the terms and conditions? Well, I don't know specifically, but I think in general what the United States is attempting to achieve, and here's a little bit of irony as we talk about this, you will remember the Trans-Pacific Partnership, the TPP. This was a big push that Obama had in the waning days of his administration. It had been a negotiation that had been going on for years involving 11 different countries that are in roughly the Pacific area. It would include Japan, the United States, Singapore, Vietnam, and other countries as well. Well, when Trump became president, I think on the very first day, or maybe it was the second day, he rescinded the United States involvement in the TPP saying it was a bad deal for the country. So what's going on, actually, is that this free trade agreement is achieving the levels that were in the TPP, basically. So the agricultural tariff productions that were built into the TPP are the ones that are basically reflected in the free trade agreement that's being negotiated now. So basically, the United States is going to get back to where it would have been if it had entered into the TPP. So I don't know the specific numbers, what the reductions will be overall, that will be announced after the agreement is in place. I was just going to say that these tariffs you're talking about, the ones that will be part of this bilateral trade agreement, are on both sides. They're tariffs imposed by the U.S. on goods coming into the U.S. and their tariffs imposed by Japan on goods coming into Japan. Am I right? That was the case under the TPP. But under this negotiation, it seems like it's one-sided. It seems like Japan is conceding on agricultural tariffs. There's three areas that are the focus for this free trade agreement. The first and foremost is agriculture. The second category is industrial goods. And they don't really know specifically what that is. And the third one is digital trade. Those three areas. But from what I can pick up from my sources and other information that I've been able to read online, it looks like this is pretty much a one-sided concession. So I think Trump and Abe had a pretty good working relationship. Abe was the first foreign leader to visit the United States. Actually, after Trump was elected before he came president, sometime in November, like a couple weeks after the election, Abe made his way out to Trump Tower. I can't remember, but I'm sure the meeting was probably at one of Trump's properties and attempted to solidify the relationship in order to smooth over trade frictions and so forth. Because Trump, as you can remember, campaigned on these trade imbalances, the chronic trade imbalances with Japan, China, and other countries, and that the United States was being taken advantage of. So I think my speculation is my own speculation is that Japan's under pretty intense pressure now by Trump to concede. And already internally, major newspapers are beginning to take a harsh look at how this deal is being structured and making the case that Abe is conceding in so one sided agreement. It may, indeed, turn out to be that way. So an example of that, that's been in the press already, is one of the products that the Chinese quotas is really hitting hard by the Chinese order. Reduction is hitting hard as corn. And part of this agreement, it's leaked somehow, includes Japan increasing its orders in what, Jay? Corn. And Japan doesn't really, you know, it doesn't really, it's here, but it's not a staple. So Abe is beginning to say, oh, there's been a pest sensation of the corn industry, it's a miniscule industry here in Japan and we have to replenish the supplies that are being lost to this pest problem. So it's kind of a flinty cover for the fact that more than likely Trump and his people are saying, hey look, you need to help me with the corn farmers because I'm getting hit hard now by China. So order more corn. Yeah, so interesting. It's sort of a chain reaction. So Trump starts a trade war with China. China responds. The agricultural community in the Midwest has no market in China. Big market and lost. Right. And now a lot of the farmers who supported Trump at the outset aren't supporting him anymore. In fact, a lot of farms are going bankrupt. There have been a number of news stories about that. That's a one-way street bankruptcy. OK, so Trump has a political problem on his hands. He's running out of an already heavy deficit economy here. And he's giving these huge support payments to the farmers. Huge billions of dollars of support payments although that's irregular. That's what he's apparently doing. And then he's leaning on Japan to help him cope with the agricultural problem that he created by imposing tariffs on China. This is all to cover his you-know-what. Yeah, and then the other point is that what he is getting now, he would have had two years ago if he had just gone forward with the TPP which Abe was begging him to do. So when the US withdrew from the TPP Japan to its credit, I was kind of surprised that they did this. They drove it forward. So it is now a signed and ratified agreement. And the 10 countries, the 10 remaining countries are trading on the spaces. So the United States manufacturers and other industries are at a disadvantage now trading with these countries because those 10 countries have reduced their tariffs and because the United States is outside of that the United States is still having to pay tariffs. Is Japan a member of the TPP? Yeah, it is. They were a member actually. Yeah. Abe works very closely with Japan to get them to be a part of this and they took it on and became a leader actually in closing it after the United States exited. That puts Japan in a friendly position with the TPP. You mentioned before the show began that this all created tensions between Japan and the US. Can you talk about that? Well, part of the negotiation style and you can see how it is operating when it comes to the negotiations is this threat to put tariffs using kind of an old obscure law stating that Chinese products or Japanese products are a security threat somehow to the United States. It's pure fiction but anyway that's the statute or the loophole that Trump has used to enforce the tariffs on the Chinese goods that are coming in. He can do this unilaterally that doesn't have to go through any kind of legislation legislative review. So he has mentioned and he is still mentioning just recently he mentioned that he could potentially do this to Japan and it would hit the auto industry and that is the major industry in Japan is that you can imagine if tariffs were put on Japanese autos being exported from Japan to the United States this would probably reduce the GDP by a significant amount the Japanese GDP and push and it's kind of teetering on going into a recession right now but if that was to happen Japan would definitely go into a recession there's no question about it. So that's what's lingering in the background and even though Abe has spent so much political capital and there's a long historic positive relationship between Japan and the United States on the number of fronts hold the big card the big threat and it's still a possibility that let's say the Japanese side all of a sudden at the last second says no we can't do this the concessions on the agricultural side are too much or we need more from you we're going to have to wait Trump could all of a sudden tweet out that guess what there's tariffs now on Japanese autos coming in I mean that's the worst case scenario but that's what's lingering in the background and Trump is part of his negotiation style is leaving that open in order to drive this more or less one-sided pre-trade agreement through to completion so that's kind of the downside or the negotiation style that's going on in Japan and of course the Japanese government and the negotiators all know this and the Japanese public to some extent knows this as well you know it's interesting there's so many moving parts to this so in the US car sales are low car ads are everywhere on television and print they're desperate to sell cars and that includes Japanese cars too I might add but the fact is American cars sales are low and the automobile industry is suffering a couple of other factors that play into this and I'd be interested in your thoughts to try to you know make sense of it the Chinese are coming into the American supply chain as the Japanese did 10-20 years ago creating assembly plans and the like inside the US the Chinese are doing that too they're in the in the supply chain in the United States a price for American cars and they're paying one-third the wages that the unions were able to extract earlier so the whole car industry is under pressure and finally one other thing I want to throw in the mix for your consideration is that the automobile manufacturers are I guess they don't agree with Trump on the emissions standards and there's a kind of rebellion going on among them and some states to hold on to Obama's emissions standards and to ignore Trump's withdrawal reduction of the emissions standards in terms of pressure by American automobile manufacturers against Trump to force him to put tariffs on Japan cars that's a good question for quite a while autos exports to Japan were on the table so Trump when he's come here he has made comments he looks out on the road with any American cars and he says what's wrong we have so many Japanese cars in America and there's no American cars in Japan and it's a long explanation there's various perspectives on why that's the case but the fact is getting to your question chain the US auto industry doesn't really care about Japan any longer there's two reasons one the Japanese auto industry is not a market of auto sales is shrinking dramatically so this is a shrinking market it's not a market that's a positive one at all and also maybe in the past they had made an effort but they weren't their particular products which is not popular in Japan and American cars and there's some European cars like BMWs there's one American car the Jeep that's popular here and I think they recognize that the way they're producing cars and selling the cars to the American market didn't translate so well into success in Japan so what I hear is that the auto manufacturers don't want Trump to engage with Japan because they don't see it as a strategic market any longer but Trump was continuing to push that up until recently I guess somebody internally convinced him to take that off the table because it would be pure politics the fact is that all of the major American auto manufacturers they don't even have offices here in Japan they would draw completely they're not in the ACCJ they're not involved in trying to promote their products here any longer they made that decision a number of years ago so on that particular issue on the trade issue autos export perspective from the US to Japan is kind of a non-issue even though politically when Trump was campaigning and up until just recently he would always bring that up as a point that Japan needs to open up its market but the three areas as I mentioned it's a negotiating agriculture some industrial goods and digital trade does not include autos from whatever your broader point about the auto industry yeah I don't know there are young people it's not just Japan but also in Europe they don't want to drive they're not buying cars they can Uber so the auto industry has significant challenges you're right and I'm not surprised that in America auto sales are also going down the millennials like public transportation or alternatives to autos and they like Uber and Lyft and they're turning their backs on the traditional American love of cars it's a very interesting time yeah for me growing up in Texas my high school you didn't have a car when you were a junior you weren't a man right might as drink how do you go out on a date if you don't have a car but when I talk to my students now they don't give a damn it's just a waste of money from their perspective you're right especially in Japan the transportation systems here are superb they just prefer to use that and avoid the expense and maintenance of a car well we have a few minutes left to talk about China and I wonder what the discussion at your trade agreement meeting last week was about China China is the 800 pounder it's right across the street so to speak and anything that happens in Japan or Korea certainly Taiwan and Hong Kong is affected by what China is doing right we did talk about that a bit in our meeting there is a plan for President Xi to come to Japan around the cherry blossom season next year there's ongoing negotiations between Japan and China on the number of fronts that's good news that the president of China will be coming to Japan at that time specifically when it comes to the US-China trade war there is no sign that it's going to end the negotiations that are ongoing are not fruitful they're not producing good results so I think both countries now are hunkered down Trump as you know plays even more higher tariffs on Chinese goods that are coming into the United States and despite what he says Jay, you're paying for that the American people are paying higher and my tax money is going to support the farmers who are going bankrupt in the Midwest this is how it all plays out unfortunately my own perspective is China they're shrewd and they have been running a trade in balance with the United States historically as have Japan so this is hurting them in some respects but they also know Trump may be not around after the next election so they can play the long game on this and maybe just wait things out and negotiate this with the next president hopefully that will come soon but I wanted to get to this trade sometimes I think Trump and maybe a lot of people dissociate trade agreements or disagreements as the case may be with geopolitical relations diplomatic relations and my last area of inquiry with you here today Steve is what effect do you see about the general relationship of the people on the street the diplomats the government of Japan with the United States because this kind of trade tension is not good for us Japan has been our closest most endeared ally in the region since the war so we certainly don't want to undermine that but somehow we are undermining it and of course the same question for China to the extent that it doesn't matter that Trump says that he's best buddies with Xi Jinping and they write love letters to each other it doesn't matter the question is how does the man on the street feel about it and how does the government in general in China feel about its relationship with the U.S. and when you put all that together and you say that to the extent that Barack Obama wanted to pivot to Asia and spend more time and attention developing diplomatic ties with all of Asia that isn't the focus anymore and in fact I suggest is that our relationship our hegemony in Asia is declining every day here because you can't separate the trade war with the diplomatic relations what do you think? I totally agree it's all integrated in terms of political negotiations and popular perception and actual economic outcomes all of this is tied together in academia in that world they like to separate different disciplines focus on economics or politics or public communication but in reality all of these things are tied together so to answer your question about Japan you're absolutely right there is a huge reservoir of goodwill between Japan and the United States and the current leaders of the LDP there is a lot of time in the United States so there is very very strong support for the US but some of this phrase like for example Trump's push on Iran Iran is a major source of oil Japan is totally dependent on outside oil they have no real internal ways to develop energy they had nuclear but that's after Fukushima that's been cut down quite a bit from the United States to not import oil from Iran but that affects the economy so on the edges you're right they're beginning to be trade negotiations or political stances that are being pushed by the current administration and it's having a negative impact on Japan and therefore a negative impact on how Japan is viewing the United States if I was to summarize it I think Abe has somewhat of a coping strategy as much as he can with the current set of issues that he's facing because of the administration's perspective on trade and also specifically on Iran and trying to isolate that country China that one maybe is a little more complex there's not that reservoir of historic relationship that goes back to World War II China is the most important trading partner for the United States or one of the most important trading partners for the United States many industries are dependent on that so there is an expectation or a hope that the trade will continue and not be damaged too much but if indeed these tariffs go on and say Trump wins next time and it goes on for years and years and years and some economists are saying that once you get into this position and you read about potential Cold War starting between the United States and China this economic friction and tension could lead to that maybe three or four years down the road and that's bad for China that's bad for the United States and that's bad for the world and to your last point about the ascendancy or the reputation of the United States it's been damaged over the last couple of years and we're putting ourselves in a weaker position and China is ascendant and their economic growth is still four or five percent a year which is much bigger than the United States and they have a very focused foreign relationship strategy to try and develop strong ties with the developing world you can look at Vietnam or Thailand or the Philippines all of these countries now have significant investments by China and that's directed by the Chinese government so to that extent China is trying to increase its influence economically and also politically and with what we're doing right now the United States has tremendous influence still because of our military and the history we're beginning to put that at risk somewhat so the crystal ball of cloudy a lot depends on the election I guess next year how the United States proceeds but if Trump does win then yeah things could significantly change from ages perspective looking at US leadership and how how qualified or how successful the US could be in that role very important very important we're out of time Steve we're going to have to leave but I would like to follow up with you very soon and check on how these things evolve in trade and in diplomatic relations also Steve Zercher and Steve is an entrepreneur professor here at Scheidler and also in Kobe thank you so much