Japan: Trade War Victim

The tariffs aimed at Japanese imports isn’t extremely high; they face a flat tariff of 10 percent and a 25 percent tariff on automobiles. The big problem is the Outlaw US Empire doesn’t produce anything Japanese want in large enough volumes to close the 2024 trade surplus of $62 Billion. Apparently omitted are the billions the Empire spends stationing its many troops, planes, missiles, and ships at its many bases in Japan, all of which make Japan a target and offer no real protection given the nature of modern war. As the article below notes, Japan’s current government. any government for that matter, will have a very difficult time getting Trump to eliminate the tariffs. As reported earlier, members of the current opposition party likened Trump’s tariffs to Mafia extortion, and as reported Japan has very few options. The biggest one is its defense relationship, which IMO is way past due for an overhaul, although that won’t specifically address the trade imbalance.

“Japan's chief trade negotiator: will insist that the United States remove tariffs and will not harm national interests”

After U.S. President Donald Trump announced his tariff policy, Japan quickly launched negotiations with the United States in an attempt to "take the lead in reaching a trade deal." However, because the two sides failed to reach an agreement on such issues as tariffs on automobiles and steel and aluminum, and Japan's political and business circles also strongly opposed any agreement that endangered national interests, the Japanese Government had no choice but to change its stance and begin to "maneuver" with the United States.

According to a Reuters report on May 20, Japan's chief trade negotiator and Minister of Economic Revitalization, Ryomasa Akasawa said at a regular press conference on the same day that Japan will insist that the United States remove tariffs and will not support trade deals that harm Japan's interests. Akasawa will travel to Washington this week, possibly for a third round of negotiations with U.S. Trade Representative Greer on the 23rd local time.

"The series of U.S. tariffs, including 'reciprocal tariffs' and tariffs on automobiles, auto parts, steel and aluminum, is regrettable," Akasawa said at a press conference. Our position on seeking to remove all tariffs has not changed. ”

He said that officials from Japan and the United States have held working-level trade talks in Washington on the 19th local time, and the time for the third round of ministerial-level negotiations has not yet been determined.

The English-language Japan Times newspaper said it was unclear what position Japan would take in the next round of talks, and officials repeatedly called on the United States to "revisit" the measures. This vague statement could be interpreted as a sign that Japan is willing to compromise to some extent. However, Akasawa thoroughly clarified this point and confirmed the tough position of the Japanese side.

"I do not have any differences of understanding with the Prime Minister," he continued, "and my position has not changed since the beginning of the negotiations: we consider these measures regrettable, and we demand that they be revisited – that is, we want them to be reversed."

Japan's Kyodo News Agency reported that Akasawa will travel to Washington this week for a possible third round of trade talks on May 23. U.S. Trade Representative Greer is expected to attend the talks, and U.S. Treasury Secretary Bessant will not attend.

Earlier, a source told Reuters that the timing of the third round of negotiations depends on how much progress Japanese and American officials make in the working-level negotiations. Japan is considering a package of proposals to increase U.S. corn and soybean imports, carry out shipbuilding technology cooperation and revise safety standards for imported automobiles in exchange for U.S. tariff exemptions, one of the sources said.

As a close ally of the United States, Japan faces a "reciprocal tariff" rate of 24%, far exceeding market expectations. Despite Trump's announcement of a moratorium on "reciprocal tariffs," Japanese exports to the U.S. still face a flat tariff of 10 percent and a 25 percent tariff on automobiles, dealing a severe blow to Japan's export-oriented economy, of which a key pillar is the automobile.

However, Japanese officials revealed that considering that the Japanese House of Councillors election will be held in late July at the latest, the low approval rating of the Ishiba Shigeru government needs to concentrate on the election, and it is unlikely that Japan and the United States will reach an agreement before the election. This means that tariff talks between the two countries may drag on until after the end of the 90-day moratorium on "reciprocal tariffs" in early July.

Japanese Prime Minister Shigeru Ishiba initially wanted to conclude negotiations with the United States "quickly", such as a trade deal around the G7 summit in June. But Japan's business community and members of the ruling party oppose any deal that could jeopardize the interests of the auto industry or farmers, and the Ishiba government has had to adjust its strategy and "maneuver" with the United States.

"While Japan was eager to be the first country to negotiate tariffs with the United States, that sense of urgency has shifted to ensuring that Japan reaches a favorable deal," said an official directly involved in the U.S.-Japan talks. ”

Japan's Jiji news agency pointed out that tariff negotiations could decide the fate of Shigeru Ishiba's government. If the current session of the Japanese Diet is not extended, the election schedule for the House of Councillors is expected to be announced on July 3 and voted on the 20th, and voters will judge the performance of the Ishiba Shigeru government in the negotiations through the election. So, in order to salvage its precarious approval ratings, the Ishiba government wants to reach an agreement to eliminate tariffs.

According to the report, if Japan is unable to negotiate an exemption, or if the United States refuses to cancel the auto tariffs that have already been implemented, the approval rating of the Ishiba Shigeru government will inevitably suffer, and the Japanese economy may also be affected. If the ruling LDP loses a large number of seats in the House of Councillors election, the LDP's internal "downfall" movement could be further accelerated.

The Financial Times also pointed out that in the House of Representatives election in October last year, the ruling coalition of the Liberal Democratic Party and the New Komeito led by Japanese Prime Minister Shigeru Ishiba lost its majority for the first time in 15 years. If a deal is reached with the United States that harms domestic industry, it could further deepen Ishiba's governance crisis.

Nicholas Smith, a Japan strategist at CLSA, said that auto exports, which accounted for 81 percent of Japan's trade surplus with the United States last year, "have become tougher." Shigeru Ishiba is fighting for his and his party's political life and cannot give up easily.

Bloomberg estimates that major Japanese automakers are expected to lose more than $19 billion due to the U.S. tariffs. Among them, Toyota, which has the world's largest sales, will bear the brunt. Toyota said last week that its revenue in April and May alone would fall by 180 billion yen ($1.2 billion) due to tariffs. According to Bloomberg Intelligence estimates, Toyota's losses could be as high as $10.7 billion for the entire fiscal year. There are also forecasts that Toyota's full-year losses are expected to be between $5.4 billion and $6.8 billion.

Smith bluntly said: "If Prime Minister Ishiba can't get a reduction in the tariffs on cars, he's standing on a conveyor belt that is close to the rotating blade." It is worth mentioning that the tariff shock has not yet appeared, and the data released by the Japanese cabinet on the 16th showed that Japan's gross domestic product (GDP) in the first quarter of this year showed negative month-on-month growth for the first time in a year.

In addition, the news agency specifically mentioned that the issue of rice imports has become an important factor affecting the election of the Liberal Democratic Party. Liberal Democratic Party officials said that even if Japan agrees to increase imports of U.S. corn and soybeans in consideration of the House of Councillors election, "we cannot make concessions on the rice issue."

For now, the Japanese government's official position has been to demand that the United States remove all new tariffs, including 25% tariffs on automobiles and steel and aluminum, as well as "reciprocal tariffs" on other goods. Shigeru Ishiba said in the Japanese Diet on the 19th that it would not harm its own interests due to time constraints, and Japan would continue to seek exemption from all additional tariffs imposed by the United States.

"Nikkei Asia" pointed out in an article on the 20th that according to trade data, Japan has a trade surplus of $62 billion with the United States in fiscal 2024, and Japan is unlikely to eliminate the surplus by increasing imports of American automobiles and agricultural products.

Nikkei Asia estimates that to increase imports by $62 billion, Japan would need to buy an additional 965,000 U.S. cars. However, Japan will only import about 13,000 passenger cars in fiscal 2024, and it will take a 72-fold increase to meet the requirements. Today, U.S. cars account for less than 1 percent of new car sales in Japan, making them unpopular in the Japanese market, and it will be difficult to achieve that figure even if Japan changes its import safety standards for U.S. cars.

In terms of agricultural products, if Japan were to offset its surplus by increasing rice imports alone, it would need to import 64 million tons of American rice a year, almost 190 times the current level and equivalent to about eight years of domestic production and consumption. If only corn imports are increased, Japan will need to import nearly 230 million tons of corn a year to offset the surplus, which is more than 18 times the amount of imports in fiscal 2024 and equivalent to 15 years of Japanese consumption.

Japan can also reduce its trade surplus by reducing exports, with the Nomura Institute estimating that if the United States does not remove tariffs on automobiles and steel and aluminum, and impose a 24 percent "reciprocity tariff" on Japan, Japan's exports will be reduced by $29.7 billion, which would cut the trade surplus by about half, but would also lead to a 0.7 percent drop in Japan's gross domestic product (GDP).

If Japan were to eliminate its trade surplus with the United States through a combination of more imports and fewer exports, GDP could fall by as much as 1.4 percent. As a result, Nikkei Asia argues that Japan faces "significant obstacles" in eliminating its trade surplus with very difficult conditions.

Noboru Kiuchi, an economist at Japan's Nomura Research Institute, warned that eliminating the surplus at once by increasing imports would have a serious impact on the Japanese economy, and that "the Japanese government should not make major concessions lightly." He predicted that the trade talks between Japan and the United States could continue to drag on, and that "for the United States, the imposition of tariffs on Japan is far less painful than the imposition of tariffs on China." As a result, the United States has little incentive to make concessions to Japan and seek an agreement as soon as possible.” [My Emphasis]

IMO, it’s easy to understand why Trump’s actions are seen as extortion by many Japanese. Note there was no speculation on how this clear impasse will affect relations, in particular the defense relationship. That Japan sat down to talks with China and South Korea soon after the Trade War announcement was a clue to the level of the Japanese government’s desperation. There was also no discussion about how Japan might redirect the portion of its exports that won’t be sent to the Outlaw US Empire. And as reported, there’s no realistic way for Japan to increase food imports to balance the trade surplus. IMO, hardball will need to be employed; for example, Japan should tell Trump that the price for the privilege of having so many military bases in Japan is Japan’s trade surplus with the Empire. Japan really needs to stand tall given how badly it was screwed by the Plaza Accords but it’s not clear to me what sort of strategy Japan might employ. The difference in leverage between China and Japan is very stark. Perhaps this event will cure Japan of its Cold War mentality and allow Japan to see who its real adversary clearly.

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