Economy Japan braces for a costly Trump trade war

Trump 2.0 doesn't bode well for Japan (and the rest of Asia). The Asian Times looks at how Japan braces for a tariff onslaught and how inefficient—contrary to LDP legend—former PM Abe's ingratiation efforts were during Trump 1.0. So far, PM Ishiba's clumsy diplomacy has only led to an embarrassing rebuke:


The panic sweeping through the boardrooms of Toyota, Honda, Nissan, and other icons of Japan Inc. highlights why Prime Minister Shigeru Ishiba is deeply concerned about 2025. Since taking office on 1 October, Ishiba has struggled to establish himself as Japan's leader. The situation grew even more challenging after Donald Trump's decisive election victory roughly a month later, which dealt a further blow to Ishiba's already embattled Liberal Democratic Party, now seeing approval ratings plummet into the low 30s.

Trump's swift moves to initiate a new trade war add to Tokyo's challenges. This threatens Japan's economic outlook for 2025 and is already complicating efforts by the Bank of Japan. Until recently, BOJ Governor Kazuo Ueda had suggested that interest rate hikes might resume—possibly at the 18-19 December policy meeting. However, the "Trump trade war" early arrival could upend those plans rapidly. According to economist Gary Hufbauer of the Peterson Institute for International Economics, a Washington-based think tank, Trump's impending trade war will be "very destructive to the world economy." Even before Trump's 26 November announcement to impose tariffs on Canada and Mexico alongside China, Ishiba's government had been scrambling to pass a new economic stimulus package worth $250 billion. This package boosts household incomes when inflation exceeds the BOJ's 2% target.

Ishiba had been trying to score a meeting with Trump at his Mar-a-Lago lair in Florida. The hope was to retrace Shinzo Abe's steps from 2016, when the then-prime minister became the first foreign leader to kiss President-elect Trump's ring. Trump World, though, is rebuffing Ishiba's overtures. And in embarrassing fashion. Trump's handlers cited the legal constraints under the Logan Act, a 1799 law barring private citizens from engaging in diplomacy with foreign governments. Yet Trump had no qualms about meeting with Hungary's right-wing leader Viktor Orban, Israeli Prime Minister Benjamin Netanyahu and other world leaders earlier this year. The odds of Ishiba and Trump getting along seem rather low. Trump still tends to pine for the days when Abe would do his bidding, including nominating Trump for a Nobel Peace Prize.

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Japan's economic outlook is increasingly uncertain due to global tensions. As the nation faces potential financial challenges, the government, led by Prime Minister Ishiba, is considering significant fiscal measures, including increased borrowing. This shift in policy, away from budgetary conservatism, is necessary to address the rising cost of living and support vulnerable households.

Increased borrowing, a rapidly ageing population, and a declining birth rate pose significant risks to the nation's long-term economic stability. As a result, both Prime Minister Ishiba and Bank of Japan Governor Ueda are likely concerned about the potential financial consequences of a Trump-like administration. The broader Asian region, heavily reliant on trade, also shares these concerns.

The Guardian looks at whether Japan, historically one of the closest US allies, will remain an indispensable partner to the China hawks in the Trump administration or instead find itself shunned. Its industries face the cold winds of a US-launched trade war, and its security is exposed to the caprice of a man prepared to initiate often alarming deals with autocrats.

Furthermore, it is highly doubtful that the bookish Ishiba can build the same rapport with Trump as Abe.

Back in 2017, well before he became prime minister, Shigeru Ishiba described Trump's method as one of "placing his counterpart in a state of anxiety and tension, creating psychological instability and then initiating a deal". [...] This all places a personal onus on Ishiba, who knows he has a tough act to follow in Shinzo Abe, the prime minister during the last Trump presidency who was assassinated while delivering a campaign speech in 2022. In 2016, Abe was famously first through the president-elect's door in New York bearing the gift of a $4,000 golden golf club. Through his superior foreign policy expertise, personal charm, golf swing and willingness to buy US arms, Abe managed to embed Japan as one of Trump's best allies, turning his concept of a free and open Indo-Pacific into something he could embrace.

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Then there's the tariffs:

Much will depend on how heavily Trump imposes tariffs and for what purpose. He has promised to set import tariffs at 60% for Chinese goods, far higher than in his first term, and 10-20% for the rest of the world. Even though Japanese firms have taken steps to disentangle themselves from the strategic Chinese supply chains, Japan would be hit hard – first through the tariffs on its own exports to the US and then the slowdown in China's trade. "It is beyond imagination. There is nothing good about it," said Yasushi Watanabe, a professor at Keio University.

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Another issue of contention might be Japan's staunch support of Ukraine.

Japanese officials argue that if the defining challenge of the 21st century is indeed the threat posed by China, that challenge is not best addressed by abandoning Ukraine since that would only weaken the US's standing in southeast Asia. Former PM Kishida stressed the importance of beating back Russian aggression, arguing: "Ukraine today may be East Asia tomorrow." As a result, Japan has provided Ukraine with $12bn in aid and sent non-lethal defence gear to Kyiv. In November, the foreign minister, Takeshi Iwaya, made a surprise visit to Ukraine in a show of solidarity and said Russia's invasion had "shattered the foundations of the international order".

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