Japan braces for a Trump trade war it can ill afford – Asia Times
Tokyo – Shigeru Ishiba, the prime minister, is dreading 2025 because of the wave of panic that is permeating the ceos of Toyota, Honda, Nissan, and other Japanese Inc. images.
Ishiba has been trying to establish himself as the head of Japan since October 1. The Liberal Democratic Party‘s burgeoning group, which has seen its approval ratings dip into the lower 30s, was made even more difficult by Donald Trump’s resounding victory about a fortnight afterwards.
The challenges are only intensifying as more information about Trump’s plan to launch his next trade conflict comes to mind. The Bank of Japan’s 2025 economic growth will already be affected by that, as well.
Until lately, Governor Kazuo Ueda argued the BOJ may become hiking rates once– perhaps at the December 18-19 table meeting. The” Trump business” arriving shortly could change that mathematics, and fast.
Trump’s subsequent trade war may be “very harmful to the earth economy”, predicts analyst Gary Hufbauer at the Peterson Institute of International Economics, a Washington-based consider tank.
Ishiba’s state was roiling to complete a new US$ 250 billion monetary stimulus package even before Trump made his announcement on November 26 that he would impose taxes on Canada and Mexico in addition to China. At a time when inflation is comfortably above the BOJ’s target of 2 %, the plan aims to increase revenues.
As Trump’s future trade war harms Ishiba’s economy and further destabilizes China’s fragile economy, there will likely be much more stimulus there.
In Beijing, President Xi Jinping’s efforts to boost growth are n’t gaining traction as hoped. In October, China‘s business revenue fell 10 % year-over-year. That was after a 27.1 % decline in September, the sharpest drop since early 2020.
The problems faced by Japan’s leading trading partner are a growing concern for Ishiba’s market as the Trump 2.0 wind techniques.
At his Mar-a-Lago in Florida, Ishiba had been attempting to arrange a conference with Trump. The desire was to repeat Shinzo Abe’s ways from 2016, when the then-prime secretary became the first foreign leader to love President-elect Trump’s band.
Trump World, though, is rebuffing Ishiba’s overtures. And in embarrassing fashion. The Logan Act, a 1799 law prohibiting private citizens from speaking with foreign governments, was invoked by Trump’s supporters.
Trump, however, was unconcerned about a meeting earlier this year with Israeli Prime Minister Benjamin Netanyahu, Hungary’s right-wing leader Viktor Orban, and other world leaders.
Ishiba and Trump seem to have a very slim chance of settling things. Trump still harbors a lingering nostalgia for the days when Abe would propose his nominee for the Nobel Peace Prize. ( Unrelated, Abe was assassinated in 2022 ).
” It may be difficult to expect serious engagement by Ishiba or a successor in personal diplomacy with the next US president, for example, or with the Chinese or South Korean governments”, says Tobias Harris, founder of advisory Japan Foresight.
Analysts believe the odds are high that Trump will expand the 100 % tariffs he plans for Mexican-made vehicles, at least in some measure, to Japan and Korea.
Hence the panic at Toyota, Honda, Nissan and the headquarters of other Japanese automakers. Executives at Hyundai, Kia, and other leading South Korean automakers are also looking ahead to a Trumpian onslaught in the future.
Trump might not find China, Japan, or Korea to be as compliant as he would like. Since 2017, Asia has become less dependent on the US than it did when it was there. Due to their respective domestic dynamics, Trump might find Yoon and Korea President Yoon Yeol less eager to follow his demands.
From 2017 to 2021, Trump 1.0 tried to browbeat Abe’s government into a bilateral trade deal that few in Tokyo saw in Japan’s best interest. Trump also made an effort to reduce Tokyo’s annual protection payments by$ 8 billion in order to keep US troop levels in Japan. Yoon’s predecessor, Moon Jae-in, faced a similar set of Trump demands.
It’s not clear, however, that Ishiba’s LDP will be as eager to bow out to Trump now that approval ratings are set to drop into the 20s as they were in Abe’s day.
Abe’s efforts to placate Trump are given too much credit, according to popular opinion. Abe ran to Trump Tower in New York in November 2016 for an audience with the incoming president. Abe also supported many of Donald Trump’s eccentricities abroad.
Yet Trump’s first big decision was to leave the US-led Trans-Pacific Partnership trade deal, a cornerstone of Abe’s efforts to contain China. Nor did Abe’s acquiescence win Tokyo a pass on Trump 1.0 tariffs, which slammed the Japanese economy.
Moreover, Trump’s odd bromance with Kim Jong Un shocked the Tokyo establishment. Abe’s pal in the White House hurts Japan’s overall national security interests by allowing the North Korean leader to accelerate his nuclear program. And Trump humiliated Abe by revealing the haughty letter Abe wrote to the Nobel Committee.
His policy team will assess how few deliverables, if any, Abe secured by prostrating his government before Trump World as Ishiba considers whether to do so.
Any calculation also must include how the Trump 2.0 trade war will wreck Ishiba’s plans for Asia’s second-biggest economy.
Arthur Kroeber, an analyst at Gavekal Dragonomics, notes there are too many imponderables for leaders from Tokyo to Frankfurt to know what’s really coming.
It’s difficult to predict the future, especially if Donald Trump is involved, Kroeber says, and the economic policy whipsaw of the past few days confirms what Yogi Berra might have said.
He continues,” no sooner had Trump calmed markets by appointing Wall Street veteran Scott Bessent as his treasury secretary than he riled them up again by threatening to impose immediate tariffs of 25 % on Mexico and Canada, as well as a 10 % hike on China,” quickly contradicting Bessent’s numerous assurances that tariffs would be layered on gradually and for clearly defined purposes, rather than unleashed all at once.”
The lesson here, Kroeber notes, “is that the range of possible trade policies in Trump’s second term is wide, and bets on any particular outcome right now are speculative”.
What’s not speculative is that Japan’s economy is n’t exiting 2024 on sound footing. Ishiba’s party, for example, is almost linearly focused on raising the minimum wage to a level that would still be too low to boost demand: 1, 500 yen ($ 9.8 ) per hour.
Business groups are clamoring that this hourly rate is too high, despite this low average hourly wage.
According to Ken Kobayashi, the head of the Japan Chamber of Commerce and Industry,” small business owners in rural areas cannot make money if the wage increases are too rapid.” Adds Masakazu Tokura, head of the business federation or Keidanren:” It takes time for management to make improvement efforts”.
Along with slamming economic confidence and global supply chains, Trump’s tariffs will boost global inflation. That would make it difficult for the Federal Reserve to keep cutting rates, as the world’s markets are accustomed to.
Additionally, it places a strain on the BOJ. On the one hand, higher consumer prices would give Team Ueda more latitude to normalize rates that have been close to zero for 25 years. On the other hand, the yen might experience a yen-topping decline that would hurt the Tokyo stock market.
Currency analysts are worried about unintended consequences from Trump playing Canada off Mexico.
According to Kelvin Wong, an analyst at currency broker Oanda,” Canada is one of the largest trading partners with the US, where its exports are primarily energy-related.” Therefore, it’s likely that Canada’s export revenues will suffer significantly if these tariff measures are implemented by the incoming Trump administration, which will result in a negative feedback loop on the Canadian dollar.
Most of Trump’s taxes on North America tariffs would be passed along to consumers. According to C J Finn, an analyst in the auto sector at PwC, the chances of automakers suddenly increasing productivity to offset tariffs are not encouraging.
Daniel Roeska, an analyst at Bernstein thinks Volkswagen, General Motors, Ford and Stellantis would be hardest hit. ” A 25 % tariff on Mexico and Canada would severely cripple the US auto industry”, he says. That, Roeska adds, would cause such a significant decline in US industrial production that” we expect this to be unavoidable in practice.”
According to Jeong Min Pak, an analyst at Fitch Ratings, the tariffs Trump has already described” could impact the profitability of Korean and Japanese automakers with imports from domestic facilities or Mexico.”
The EU’s high import duties against Chinese battery electric vehicles, Pak says, “are also likely to temper China’s exports. Fitch anticipates that the shifting of the focus to “developing markets” will encourage competition and have the potential to accelerate electrification of these markets.
Additionally, there are other ways BOJ policy and Trump’s stated desire to devalue the dollar could conflict, including by having direct control over Fed rate decisions. The ways that could trash the dollar’s credibility are hard to calculate.
Then there’s the China factor. It’s fantastic to think that Xi Jinping, the leader of China, wo n’t retaliate as Trump continues to impose trade restrictions and meddle in the currency, is. A sharply weaker yuan might be developed by China. A wider descent across Asia would result from that.
Xi wants to avoid doing so for a variety of reasons. It might stifle efforts to establish international respect for the Yuan. Additionally, it might increase the risk of default for large property developers who work offshore.
But with Trump nominating China hardliner Jamieson Greer as the next US trade representative, it’s hard to see trade tensions easing. Greer is a protege of Robert , Lighthizer, Trump’s former and likely one of his future top trade advisers. Lighthizer is a major proponent of dollar devaluation.
Greer calls for a significant decoupling from China and sees it as a “generational challenge.” This view of Trump as a world ignores China’s potential retaliation, including steps to weaken the yuan.
As Japan finds itself caught directly in the crossfire, the nation’s debt load seems poised to increase markedly. This might force Ishiba, a long-time fiscal hawk, to accept a debt-to-GDP ratio far higher than today’s more than 260 %.
Indeed, Ishiba seems to be embracing increased borrowing at a rapid clip, pivoting to the policies of predecessor Fumio Kishida, who championed “wealth redistribution”.
When Ishiba was asked about his upcoming economic package, Ishiba told the parliament last week that” we will take comprehensive steps by giving cash handouts to low-income families that are most severely impacted by rising prices and providing subsidies to local governments based on their needs.
Ueda’s plight at the BOJ is only made worse by this reality. Tokyo’s debt burden could get worse every time the BOJ raises rates beyond the current 0. 25 % level. As of the end of 2023, Tokyo’s national debt was about$ 9.2 trillion, or 2.4 times bigger than Germany’s GDP.
Tokyo would likely face a mini-crisis if the yields of Japan rose, which would be combined with a trade war that Asia has never witnessed. If global investors take a fresh, hard look at Japan’s demographic crisis, which is brought on by a rapidly aging population, falling birthrate, and rampant government debt, that risk could grow even worse.
All of this explains why Ishiba and Ueda are undoubtedly depressed by Trump 2.0. And they’re surely not alone across trade-dependent Asia.
Follow William Pesek on X at @WilliamPesek
