Welcome to The CSPC Dispatch!

This edition features contributions from CSPC Senior Fellow Robert Gerber on the federal deficit, Senior Fellow Hidetoshi Azuma on the leadership void in Japan and the specter of Shinzo Abe, and Andy Keiser on the supply chain risks of foreign-made technologies.

We are also pleased to share CSPC’s new Report for the Presidential Transition Team. The Center has compiled this analysis and recommendations for the consideration of the transition team of President-Elect Donald Trump, as well as related congressional and agency leaders looking ahead into 2025 and beyond. The team and community of CSPC hopes that they will assist in the creation and implementation of policies in the best national security interests of our country and in the best traditions of bipartisan leadership that have formed the foundation underpinnings of the Center’s work for nearly 60 years.

As always, we hope that you will find the newsletter useful and would be delighted to receive your feedback or thoughts on how we can improve going forward.

The Specter of Shinzo Abe

By Hidetoshi Azuma

A specter is haunting Japan — the specter of Shinzo Abe. Ever since the untimely assassination of Japan’s longest-serving prime minister in 2022, Japanese politics has been adrift due to the ongoing internal strife. The upshot has been a crippling, virtually incurable leadership void in Tokyo. The incumbent Japanese Prime Minister Shigeru Ishiba’s beleaguered premiership is a palpable symptom afflicting America’s most important ally in Asia. Indeed, US President-elect Donald J. Trump’s crude rejection of Ishiba’s request for an in-person meeting last month exposed Tokyo’s growing leadership crisis, only to be further highlighted by the surprise visit to the Mar-a-Lago by Abe’s widow, Akie Abe this past weekend. In fact, today’s unprecedented crisis of the US-Japan relationship is occuring in Abe’s lingering shadows and merits a sober reappraisal of his legacies on the eve of Trump’s inexorable return to the White House next month.

Abe’s single most important legacy was his successful handling of Trump’s America First drive. America First is a recurring theme of isolationist nationalism in American history and has a contentious past with Japan during the three Republican presidencies in the 1920s. In fact, Abe was the first Japanese leader to confront America First in almost a century and ultimately succeeded in managing it. While his 20th-century predecessors yielded to the incessant pressure of America First, such as the Washington Naval Conference and the Immigration Act of 1924, Abe successfully minimized, if not deflected, the impact of Trump’s America First impulses as well as his unpredictability, leading the two leaders to forge a win-win relationship. As a result, the US-Japan alliance reached new heights on Abe’s watch, leading Trump to officially incorporate two of the Japanese leader’s signature agendas, namely the Free and Open Indo-Pacific (FOIP) Strategy and the Quadrilateral Security Dialogue (QUAD). Even more remarkably, he achieved this without sacrificing domestic support in stark contrast to his predecessors, who failed to control the popular discontent and, later, the rise of militarism due to the prevailing perception of submission to America First.

In short, Abe succeeded in maintaining Japan’s security status quo vis-a-vis the US despite the pressure of Trump’s America First policy. The US-Japan alliance forged after WWII reflected Washington’s security altruism, if not benevolence, driven by interventionism and internationalism following the demise of America First in 1941. The original bilateral arrangement agreed on in 1951 required the US to defend Japan, not vice versa, and withstood the subsequent update in 1960, allowing Tokyo to focus exclusively on economic reconstruction under the aegis of the world’s strongest military power almost indefinitely. In other words, Washington put Japan first and America second however strategically sensible such a policy may have been in the 1950s. While Abe himself had long sought to challenge this unequal division of labor and even forced the passage of the controversial 2015 security legislation recognizing collective defense, he stopped short of resetting the alliance itself and instead expanded the bilateral defense perimeters beyond Japan to include the entire Indo-Pacific with the putative aim of countering China. By doing so, he successfully shifted Trump’s focus away from zeroing in on Japan’s inconvenient history of free-riding the alliance and prevented the worst case scenario of a unilateral US withdrawal from the 1960 US-Japan Security Treaty.

The key to Abe’s success was the combination of his amiable personality and the presence of conventional-minded foreign policy hands in the first Trump administration. With sincerity as his life-long motto, Abe had a knack for befriending numerous world leaders ranging from fellow democratic leaders, such as Canadian Prime Minister Justin Trudeau to even autocratic strongmen, most notably Russian President Vladimir Putin. Naturally, Abe captured Trump’s heart. It culminated in the first Trump-Abe meeting at Trump Tower only days after the US presidential election in 2016. Meanwhile, Trump’s foreign policy hands during his first term espoused mainstream thinking and worked indefatigably to ensure continuity in the US-Japan alliance. While the confluence of the Trump-Abe bromance and foreign policy conventionalism at the Trump White House was fortuitous, Abe undoubtedly leveraged it for his successful engagement with his America First counterpart.

Yet, Abe’s Trump legacy inherently stood on a fragile foundation in the vicissitudes of geopolitics. First, Abe himself abruptly resigned in August 2020 and unceremoniously passed the baton to his successor, the former prime minister Yoshihide Suga, who did not even meet with Trump due to the COVID-19 pandemic. Trump’s departure from the White House in January 2021 also led Japanese politics to suddenly pivot to President Joe Biden. Suga’s successor, the former prime minister Fumio Kishida, took extra pains to forge a special relationship with Biden and embraced his oft-controversial agendas, such as LGBT rights promotion. As a result, Abe increasingly found himself marginalized in Tokyo and eventually succumbed to terror. His assassination and the subsequent scandals involving his faction led to the rapid decline of conservatives in Japan’s ruling Liberal Democratic Party (LDP) and the rise of the left increasingly aligned with China in Tokyo.

Ishiba’s rise to premiership this past September put the final nail in the coffin enclosing Abe’s decaying Trump legacy. Ishiba represents the LDP’s pro-Chinese left and has a contentious history with Abe. Indeed, Abe once reportedly warned about Ishiba’s ambitions and exhorted his allies to prevent his rival from becoming a prime minister. Abe’s top ally, the former prime minister Taro Aso, also has an unresolved feud with Ishiba lasting more than 15 years. In other words, Ishiba’s premiership signifies the decline of Abe’s allies who supported the Trump-Abe bromance in the latter half of the 2010s.

What’s worse, the second Trump administration will likely expunge any remaining elements of the foreign policy establishment in Washington. Symbolically, Trump specifically excluded the former Secretary of State Mike Pompeo and the former US Ambassador to the United Nations Nikki Haley from administration posts. Ironically, Pompeo recently came on Japanese payroll in Nippon Steel’s lobbying efforts for the purchase of the US Steel. Instead of familiar establishment types Tokyo long sought to befriend and even cultivate, Make America Great Again (MAGA) ideologues, such as Pete Hegseth and Tulsi Gabbard, are increasingly looking to take the helm of Washington’s foreign policy.

The emerging reality in Washington and Tokyo indicates that the traditional channel of communication which long served both countries is dysfunctional. Indeed, Trump spurned Ishiba’s official request for an in-person meeting last month much to the humiliation of the Kantei and the Ministry of Foreign Affairs (MOFA). By contrast, Abe’s widow used her private channels to secure an appointment with Trump with aplomb. Japan’s leading telecommunications tycoon, Masayoshi Son of SoftBank, also leveraged his private ties to Trump for a meeting involving a $200 billion deal. The former prime minister Taro Aso also used his private connections to secure a meeting with the then-presidential candidate Trump at Trump Tower this past April.

Ultimately, the growing crisis of the US-Japan relationship boils down to the question of Japanese leadership. Trump fundamentally viewed Abe as a visionary leader instead of simply his friendly sidekick. He also viewed Aso as an unrivaled kingmaker to be reckoned with, especially in light of the Abe-Aso diarchy during the first Trump presidency and his influence over Kishida. By contrast, Ishiba appears to be an awkward weakling unworthy of Trump’s time, let alone presidential treatment. What drives Trump’s thinking is a naked gut feeling about Japanese leadership. Ironically, his animalistic intuition is accurate in sizing up Japanese leaders. After all, Ishiba was an outcast within the LDP for almost four decades and only emerged against the backdrop of the power vacuum left by Abe’s untimely demise in 2022. Trump’s reelection has already begun to disrupt the original circumstances under which Ishiba rose to premiership a few months ago.

As Trump’s triumphant comeback to the White House approaches in earnest next month, history appears to come full circle for the US-Japan relationship. Trump’s reelection has vindicated Abe’s legacy, however fragile a foundation it stood on. After all, he was the first Japanese leader who dealt with the pressure of America First without disrupting the status quo at home and abroad. Trump’s frequent invocation of Abe is an irrefutable testament to the inescapable shadow of the slain Japanese leader cast over the US-Japan relationship today. Yet, 2024 is no longer 2016 as charm is no longer a trait in Tokyo while MAGA’s thirst for retribution is about to descend on Washington’s foreign policy establishment.

What is to be done about Japan? The answer to this fundamental question lies in a sober reappraisal of Abe’s Trump legacy while remaining mindful of the whole new reality increasingly overshadowing the US-Japan relationship in late 2024. Perhaps, the starting point for thinking about the US-Japan relationship under the second Trump presidency would be Aso’s private meeting with Trump at Trump Tower several months ago. Aso showed up at Trump Tower as Tokyo’s uncontested kingmaker bent on leading “Japan’s will to fight” for which he had called while in Taiwan in 2023. While sharing Abe’s private approach to Trump, Aso showed virtually no charm and little regard for foreign policy orthodoxy. He appeared ready, willing, and able to make a deal as in business and finally confront the aging elephant in the room, or post-WWII Japan’s pacifism. Such a no-holds-barred approach merits meditation so as to exorcise Abe’s specter ahead of the second coming of America First under Trump next month.

The Election is Over. Now Can We Talk About the Deficit?

By Robert W. Gerber

Chair Powell answers reporters' questions at the FOMC press conference on September 18, 2024 (Photo Credit: The Federal Reserve)

There is a lot of speculation in the news about tariffs and tax cuts under a future Trump Administration. It is harder to find reporting on the federal deficit. This could be because during the 2024 presidential campaign, neither candidate made the deficit a priority.

The federal deficit has been growing steadily since 2015, with spikes in 2020 and 2021. In fiscal year 2024, the federal government spent $6.75 trillion and collected $4.92 trillion in revenue, resulting in a deficit of $1.83 trillion. (Source: U.S. Treasury). The federal government has overspent $624 billion since October 2024 alone. Overall national debt stands at a record $36 trillion. Federal interest currently costs 14.8% of the federal budget, which is double what it was in 2015. We are not alone in this dilemma: Japan and several European countries are running significant deficits - while experiencing lower growth rates than the United States.

Deficit spending can boost a fragile economy, but it can also pose hazards over the long term: interest rates face upward pressure, as this CBO report explains; the government spends resources on interest payments that could otherwise be used for productive investments; and if a government can no longer find buyers for its debt – well, bad things happen.

Key influencers like Federal Reserve Chair Jerome Powell have recently sounded the alarm about the U.S. federal deficit. Powell said in early December that the “deficit path” was unsustainable, given that it was outpacing growth rates. He added that the deficit is ultimately a threat to the economy, and that addressing the problem sooner is better than later. These are rare comments from an institution that generally avoids commenting on fiscal matters. Earlier this month, Blackrock CIO Rick Rieder said the first or second question investor clients ask him is about the federal debt and debt service. Accordingly, Rieder noted that corporate CEOs concerned about the federal debt have been moving money accordingly into real assets, rather than federal debt securities. Rieder said the incoming administration and congress will have to address deficits for the sake of the U.S. dollar. Steven B. Kamin of the conservative-leaning American Enterprise Institute posited that, “The pressure on the budget from rising interest payments could call into question the government’s ability to sustain ever-higher debt levels without resorting to either default or inflationary money-printing.” Jeffrey Gundlach, CIO of U.S. asset management company DoubleLine Capital, wrote in the Economist that the debt would expand beyond the government’s ability to serve it “under the next few presidential administrations,” forcing either dollar debasement, debt restructuring, or both. Rep. Ralph Norman (R-SC), a deficit hawk, told Bloomberg TV that federal spending needed to get back into balance, calling the current state of affairs “fiscal insanity.” Democrats who support higher spending on social programs should also be concerned about rising debt payments encroaching on those programs.

The U.S. economy is enjoying fairly strong growth, diminishing inflation, and a solid labor market with 4.2% unemployment. The Dow Index is up 12.3% for the year, the recent slump notwithstanding. These conditions create an opportunity to focus on the deficit. However, the incoming president will want to extend tax cuts that he and Congress enacted during his first term. A new government efficiency initiative such the one envisioned by businessmen Elon Musk and Vivek Ramaswami could lead to reductions on the margins of federal spending, but impactful budget resizing will require a reckoning of entitlement programs and defense spending, which are highly politically sensitive. Presidents Reagan, Bush I, Clinton, and Bush II each launched initiatives to curb federal spending and “right size” government. These programs found varying levels of success, as NPR ably chronicled in the article “Musk and Ramaswamy's DOGE echoes past budget promises that faced big hurdles.”

A solid economy and a sympathetic Congress offer President-elect Trump a unique opportunity to put federal spending on a more sustainable path, averting the worst possible outcomes that are being foretold by the Federal Reserve, key investors, and members of his own party.

The Supply Chain Risks of Foreign-made Technologies

By Andy Keiser

Originally published in Real Clear Policy on October 31, 2024

Shipping Containers at the terminal at Port Elizabeth, New Jersey (Photo Credit: Captain Albert E. Theberge, NOAA Corps (ret.))

The recent operation against Hezbollah in Lebanon, where hundreds of pagers — licensed from a Taiwanese company and manufactured in Hungary—were weaponized somewhere in the supply chain and detonated simultaneously, serves as a stark reminder to Democratic nations of the critical nature of supply chain security.

As China is America’s premier foreign adversary, dual-use items made in China like telecommunications equipment, drones, and software platforms like TikTok have already been proven to have nefarious use – helping the Chinese Communist Party collect data, conduct espionage, or shape the information battlefield to its advantage.

Read the Full Article Here

The CSPC Dispatch - Dec. 20, 2024