The Journal The Authority on Global Business in Japan

Ambassador Hagerty with his dog, Crosbie

For William F. Hagerty IV—the top US diplomat in Japan—arriving in Tokyo on August 17 was a homecoming. Not only did he spend three years working here for the Boston Consulting Group from 1988 to 1991, he was also a member of the American Chamber of Commerce in Japan (ACCJ). Now that he has settled into his new role, The ACCJ Journal sat down with the Tennessee native to discuss security, diplomacy, and the importance of the US–Japan relationship.

What did you miss most about Japan?
I feel like I never really left. I stayed in constant contact with my friends here and traveled here. For four years, I worked as the Secretary of Trade and Commerce in my home state of Tennessee and did a tremendous amount of business here in that context. So, in many ways, I never left; but the wonderful opportunity for me is to bring my family here and share the country with them. I think it is going to be a great experience for them, and I know it is going to be a wonderful experience for me to be back here.

I understand that you are a fan of sumo. Have you made it to any matches since returning?
Over the years, I’ve taken my wife and my two boys to the matches when we were visiting; but I took the entire family just a few weeks after we arrived, when the matches were on. The most fun part was to be with the great American sumo wrestler, Musashimaru. We sat next to him and he gave us a blow-by-blow, hold-by-hold commentary. It was just terrific.

What did your daughters think about their first sumo experience?
They are aware of it because the boys have talked about it constantly since they saw it for the first time, so my daughters weren’t surprised at all. They’ve Googled it and they’ve seen YouTube videos, but there is nothing like being there. And it’s not just a sport, it’s an art form, too. The cultural aspects of it and the ceremony are a lot of fun.

Speaking of sports, what do you see as the economic potential of the Tokyo 2020 Olympic and Paralympic Games?
I think it’s a terrific opportunity for Tokyo and for Japan. If you think about the past couple of decades, the economy has taken a major turn; and in the past several quarters we’ve seen a nice uptick. I feel a great sense of optimism in the country, and my belief is that it is a wonderful opportunity to showcase the future for Japan. There couldn’t be a more attractive and modern city than Tokyo, and it’s a wonderful time given the economic travails of this country to be able to look to an optimistic future. So, I think it is wonderful from a timing standpoint. My sense of the direction of the economy now is that the trajectory is better than it has been, and this will be a very nice way to amplify that and communicate to the rest of the world that Tokyo, and the nation, are looking toward a new era.

There is one more economic benefit that I want to mention. That’s the direct economic benefit that I hope America sees here, and that is to bring a lot of “gold” back to our home country. I’m looking forward to that.

Are there any lessons Los Angeles can learn from Tokyo as it, too, prepares to be a repeat Olympic host in 2028?
I think there is great opportunity for learning there and I am sure that all eyes will be on Tokyo from the United States Olympic Committee. We’re actually staffing up at our embassy to help accommodate the greater traffic of US citizens in the sporting community, and we think there will be a tremendous amount of flow back and forth and—as you suggest—there will be many lessons to learn.

Foreign direct investment is an important topic in Japan, and the Japanese government aims to double it inward to ¥35 trillion by 2020. Why do you feel it is so important?
I certainly know this story firsthand, and I’ve worked on it in both directions, too. When I lived here before, we were largely focused on inbound foreign direct investment. It was much more challenging then. I think [Prime Minister Shinzo Abe] has opened the door and really encouraged more companies on a global basis to come and invest here.

I have pledged to him and to the US administration here that we are certainly going to do our part to get American companies to invest in Japan. I think it is good for American companies in terms of opening new markets for their products, and keeping them innovative and competitive.

If you don’t compete globally, your competition winds up coming to your doorstep—and that often isn’t good. What I’m optimistic about, as well, is that the opportunity for increased foreign investment from Japan to the United States has never been better. There’s a tremendous amount of cash built up on the balance sheets of Japanese companies and, if you look at market attractiveness across the world, the United States is relatively more attractive than most other places one might invest.

My optimism is even greater now, seeing the deregulation underway in the United States. This administration is making a huge effort to try to come back and clear out some of the sclerotic regulatory structures that have been in place for years and years, take away some of the conflicting aspects of the regulatory regime, and really try to make the regulations accomplish their intended purpose in a more economical and simple fashion. That will increase the ability to yield a return on capital, and I think it will also make our home country easier to do business in.

At the same time, I’m optimistic about the potential for tax reform in the United States. As we look at our country on a relative basis, our corporate tax rate is the highest in the world. I have a feeling that’s going to change in a positive way and, again, that will enhance the return on investment for anyone investing in the United States, and Japanese investors will certainly benefit from that.

Overall, what happens in very virtuous cycles is that capital investment begets jobs, more jobs beget more economic activity, and more economic activity begets the need for more capital investment. So, it’s a very virtuous cycle, and the more investment we see between Japan and the United States the greater both of our economies become.

Today, Japan and the United States together comprise about one-third of the world’s GDP, and I think that we will continue to be a strong combined force. We have over $400 billion in Japanese foreign direct investment in the United States, and about $100 billion in US investments coming this direction, and they both will continue to increase.

Hagerty still has the April 1991 issue of The ACCJ Journal, in which he appeared.

Is there anything you saw in how Tennessee attracted Japanese investment that could help Japan understand how to attract more US foreign direct investment?
One thing that is certainly true in the United States—and I think can be true as well in Japan—is that the engagement of the state in local leadership really does a great deal to pull through investment. We just had an event here at my home last night with [Tennessee Governor Bill Haslam] and his full economic development team—inviting all their foreign direct investor partners over—and they really do work hard where the rubber meets the road to help Japanese companies understand the intricacies of doing business in the United States, helping them deal with the regulatory framework and making certain that they land in a way that’s going to be constructive.

The concern that comes up more often today than, I would say was the case, certainly 10—even five—years ago is the availability of a talented workforce. In the United States, we’ve got a big challenge in terms of the readiness of our workforce because the jobs that are coming today are high-skill jobs that require a certain sort of technical proficiency. The same holds true for Japan.

I know in my home state—and I’m certain the same is true in yours—there is a very deliberate effort, working with the community college systems with the technical schools, to really get the type of training that these companies need. I’ve seen much more direct engagement between the companies and the educational system to try to help them get specific competitive training programs in place. I suspect workforce training will be an increasingly important factor for Japan as well.

I was speaking with several companies last night that were complimentary of what we have been doing in the United States, in terms of helping them get job-specific training, so that they have the technical support and capacity that they need.

There was a significant gap between the departure of former US Ambassador Caroline Kennedy and your arrival, which concerned some. Can you explain the importance of your post and of diplomacy in today’s world?
The thing to remember is that the structure that’s in place always deals with the fact that there is a change in our leadership. So, when Ambassador Kennedy stepped out, our Chargé d’Affaires Jason Hyland stepped in and did a terrific job of managing efforts and affairs for the United States.

We had a very seamless transition from Jason to Rob Rapson to now Joe Young, who recently joined as my deputy chief of mission, and my sense is—even though I understand the concerns—that we have maintained a very strong presence here even in the absence of a formal ambassador. The process certainly could benefit from a little tightening, but that’s just the nature of Washington.

I’m very pleased to be here, and I think you will be relieved to know that I’m in regular contact with the chargé d’affaires in South Korea, Marc Knapper, and Terry Brandstad, our ambassador in China. The three of us stay in regular contact and work on a regional basis to make certain that we are staying aligned—exhibiting the right tonality, if you will—and we all are in constant communication with Washington.

And the fact that Marc Knapper is the chargé d’affaires as opposed to the ambassador, while it may make a difference in the minds of the public, it doesn’t make any difference from an operational standpoint in terms of how I work with him or how the rest of the embassy works with him.

North Korea poses an increasing threat. How important is the US–Japan alliance today and how should it evolve to ensure peace and mutual benefit?
What we all know is that—over the past two decades plus—there has been dialogue and payment activities that have gone on between Japan, the US, South Korea, and North Korea. The six-party talks . . . a lot of time and effort went into that. The one thing that has been constant through all of it is that the North Korean regime never stopped their efforts to develop a nuclear weapon.

We’ve gotten to the point where the leadership there is on the precipice of developing something really horrible, and our administration said that the time for dialogue and the time for bribery has stopped. We’re going to set that aside and we’re going to focus on diplomatic measures—specifically sanctions at the United Nations (UN).

My colleague Nikki Haley, US Ambassador to the UN, has worked very hard, and I think delivered a great deal in terms of bringing the rest of the world along with us on the Security Council, and increasingly stepping up the sanctions with the support of all members, including Russia and China. Where we are today is a 30-percent restriction of the importation of oil into that country. That’s going to have an effect.

It’s not devastating to the people of North Korea—our objective isn’t to hurt the populace of North Korea. Our objective is to demonstrate to the regime they need to come into compliance with the UN sanctions, they need to live by world norms, and they need to denuclearize—we want to see the entire peninsula denuclearized, so their activity needs to come to an end in that area. Those pressures have been very systematic and deliberate, and that’s diplomacy at work.

And, again, I admire Nikki for the great job that she is doing. I think you should know that all of us here in the region are working hard to support that effort.

Does Washington call upon you and the diplomats in South Korea and China for input when making decisions?
We have great rapport on this. The alliance has become terribly critical.

I have had the benefit of observing it over two decades, and I have never seen it stronger. It’s stronger for many reasons, but I think this most immediate threat in the region has really forced a tremendous amount of activity between our mission here in Japan and the Government of Japan, between counterparts back in Washington with our counterparts here. Secretary of State Rex Tillerson and Secretary of Defense Jim Mattis were here very early, Secretary of Commerce Wilbur Ross and Secretary of Energy Rick Perry have been here, and General Joseph Dunford, who is the chairman of the Joint Chiefs of Staff, has visited as well.
We’ve had a tremendous amount of connectivity at the highest levels of the government in the United States with the government here in Japan, and I’m in contact with all levels of the Japanese government in my role as ambassador.

So, the alliance—in my opinion—has become ever stronger, and it continues to be rock-solid. You’ve probably heard me say it before, but the bonds are the strongest they’ve ever been. I think that we’ll continue to see complete lockstep in the alliance in terms of our view towards security in the region.

What role does the US–Japan relationship play in maintaining peace and prosperity as regional geopolitics regarding China evolve?
I don’t see anything changing the value or the importance of the alliance between the US and Japan. I have said often and I will repeat it: I think ours is the most important bilateral relationship in the world. If I think back to when I was in Japan in 1990, one of the biggest differences from that time to today is the influence of China in the region.

ACCJ President Christopher J. LaFleur presents Hagerty with a group photo from the welcome luncheon.

Their economy has moved at a rapid pace, their influence in the region has grown dramatically, and they are a very different economic force than they were at that time, exerting influence in multiple directions.

They also have a very large market. Japan has dedicated a lot of assets to that market, as has the United States; so there is a tremendous economic connection there. There’s also a tremendous trade deficit there that has been an annoying problem. That’s something that’s also been persistent with Japan—Japan is our second-largest deficit—but, by far, the largest trade deficit the US has is with China. So, yes, their role and influence has changed significantly. If you poll people in the United States, you get a different set of perspectives depending on what industry might have left town or what retailer they like to visit the most. People have different perspectives on that, but the role of China has become significantly greater in all our calculations.

Do you feel there is a benefit to the US in being part of a revised Trans-Pacific Partnership?
I think that it was clear through the course of the 2016 election that neither party’s candidate was going to support the Trans-Pacific Partnership, and that it was not something that America was going to be a part of in 2017. President Trump kept his promise and withdrew from that arrangement. His focus is on making sure that our trade agreements are fair and free and reciprocal. What we’re striving for on a bilateral basis is just that kind of result. So that’s where our efforts are going to be focused, and I think there has been a very clear communication from Washington, and certainly for me here, that our focus is a bilateral—and therefore more enforceable—relationship.

Are there any sticking points that you think might be difficult to overcome in the US–Japan economic dialogue?
We haven’t gotten to the point of identifying issues that we feel have too much sensitivity or create too much friction. I’m not saying that we might not have points of disagreement—I would frankly expect that there would be points of disagreement, as that’s the point of sitting down and trying to work through issues—but it’s hard for me to gauge right now the Japan-side priorities. Until we’ve spent more time across the table from one another, I don’t have as good a sense for it as I’d like to have to give you a perspective on what areas might be most contentious.

There is so much for you to deal with. What is a typical day like for the US Ambassador to Japan?
Every day, our team is focused on three things. Our top priority is the security of this region. Very close to that is deepening the economic partnership with Japan. Then, the third priority, is deepening our cultural or people-to-people ties—so-called soft diplomacy.

That part of it might be the shared love we have of a given sport, such as sumo, which I like, or bringing a professional golfers’ association over here. Prime Minister Abe and I gave a kickoff toast for that great golf match. And in September we held an event to celebrate the first ever Japanese winner of the Indianapolis 500. That sort of shared appreciation for things that we both love is something that I want to celebrate.

I’m from Nashville, Tennessee—Music City, it’s called. I would love to see more music diplomacy take place—a shared love of music that we can highlight here as part of our mission in Japan. We’ll be looking for opportunities leading up to the 2020 Olympics. I think there will be many other things that we can do in the sports arena. My background certainly speaks to that, and I think you’ll see a lot more of that sort of activity.

Tell me more about music diplomacy.
It’s an industry that actually is thriving where I’m from and the aspect of the industry that really does well is live performance. I have a number of friends in the industry that I have spoken with already, and would like to see more American performers come here. And if there are ways to help Japanese performers go to America, I think we know the way to help them get channeled into the right place.

That’s a fun and interesting way to share culture. And if you think about how many people tell you that they have learned English through our songs, it really is amazing. Not only will we have fun, but it helps to build that foundation of friendship that supports partnerships and alliances that are critically important from a strategic standpoint.

We hear a lot of different things about Donald Trump. What is he really like?
He is a person that has immense compassion for people. He also is a very demanding boss. He expects results. He’s not a product of Washington, he is not a professional politician. I think that sometimes takes the traditional policy establishment in Washington by surprise. It may sometimes catch the media off guard that he’s someone who speaks in a very direct fashion and wants to see results. So, it’s interesting to see somebody who has been able to connect so strongly with the voting populace. And, in a way, that has frustrated many who are accustomed to different means of communication with that group.

I was speaking with the governor of my home state earlier this week, and he said that President Trump enjoys a 70-plus percent approval rating in the state. So, I think he is touching and reaching a vast number of Americans in a format and in ways that are just different, and what we are seeing is an evolution yet again of how political leadership speaks to the populace.

I think we are seeing that the transformative aspects of change are sometimes difficult for people to understand or accept at the time; but we’re moving through a transformation in terms of how political leaders speak directly to voters. I think that might be uncomfortable for the traditional means of either media communication or for policy leadership, but I think people are coming to understand that it’s the new way.

Do you have any final messages for the business community and the ACCJ?
It’s a terrific honor for me to be back in Japan and to be an alumnus of the ACCJ—and to come back in the role of honorary president.

That’s a wonderful honor for me, but I believe it is a tremendous obligation, too. I feel an obligation to the American community here. I want you to know that security is our number-one priority, and the security of Americans here is my top job and our embassy’s primary focus. We talked about the desire to deepen the economic relationship here. Looking out for American interests in that regard is job number one. And if we can do it in a way that is fun and enjoyable, sharing our mutual love of many things in this culture, that’s a great win for us all.

I view your membership—our membership—as an extension of our diplomatic effort. I know what it’s like to have lived here and to have my Japanese friends and colleagues come to ask me, “Why is America doing this?” or “Why does America believe that?” It really does force you to: 1) be a better American, because you have to reflect on the norms of our society; and 2) be an “unofficial diplomat.” And so, I want to stay in close and regular contact with the membership and let our membership know that I appreciate the role they all play in diplomacy for the United States here in Japan.

 

These companies join The ACCJ Journal in welcoming the new US Ambassador, William Hagerty.

 


 

Christopher Bryan Jones is Editor-in-Chief of The ACCJ Journal. Originally from Birmingham, Alabama, he has lived in Japan since 1997.