In his keynote address at the 52nd annual meeting of worldsteel (World Steel Association) held in Tokyo on October 16-17, Professor Kazumasa Iwata, president of the Japan Center for Economic Research (JCER) and former deputy governor of the Bank of Japan, focused on the Japanese economy, the Japanese steel industry, and US trade policy under President Trump.
Commenting on the economic situation in Japan, Prof. Iwata said that the Japanese economy has been experiencing its second-longest expansion phase since WW II, with an average growth rate of 1.4 percent seen in the 2012-18 period. Inflation is currently at 0.9 percent, he remarked, still short of the 2.0 percent target, while CPI excluding fresh food is at 0.4 percent.
As regards steel, Prof. Iwata pointed to the strong performance of China, with its crude steel output rising by 7.2 percent year on year in July this year to 81.2 million mt. Meanwhile, in the US the volumes of steel imports have declined due to Trump’s tariffs and the price of hot rolled coil has jumped by 42 percent. Despite the decline observed in July this year, Japanese crude steel production has been surprisingly stable, reflecting moves to high value-added production. Among the factors influencing steel demand in Japan is the declining and ageing Japanese population. In this respect, another economic difficulty for Japan is that life expectancy is also longer and that people are living far longer after retirement. Also, among the issues negatively influencing Japanese steel demand are the decline in housing starts and the fact that young Japanese have less interest in buying automobiles, being, as he said, more interested in smart phones and the internet. A positive factor affecting Japanese steel demand is the ageing of infrastructure and the consequent need for renewal, in particular in the areas of road bridges, tunnels, river management facilities (sluices, etc), and port quays. Another factor is natural disasters (e.g., the Kumamoto earthquake in 2016), while some natural disasters are maybe becoming more serious due to climate changes, he stated. Such factors result in strong demand for steel, which is furthermore boosted by sharply rising demand from robotics. All these factors will work to sustain demand for steel in Japan, he affirmed.
Stating that the expansionary impact of Trump’s $1.3 billion stimulus is expected to disappear by 2020, Prof. Iwata described Trump’s policies, including the tariffs on imports of steel and aluminum as well as of auto goods, as being the worst economic policy in the US in the post-WW II era. He went on to highlight the tightening monetary measures of the US Federal Reserve, which has hiked interest rates to counteract the negative expansionary effects caused by Trump’s policies. In addition, he recalled that the US Fed is focused on cutting its balance sheet by one third and warned that this quantitative side of monetary policy should not be forgotten. The country most seriously affected by Trump’s 25 percent tariffs on steel and aluminum is Brazil, the JCER president said, whereas Japan is more strongly impacted by the US tariffs on automobiles and automotive parts. He also stressed that the quantitative export restraint seen in the NAFTA renegotiations is not consistent with WTO rules, while he went on to warn that Japan should avoid any currency-clause agreement in its negotiations with the US.