Yesterday U.S. President Donald Trump visited Japan and met with its new Prime Minister Sanae Takaishi. Both are conservatives and agree on many points. Japan is a trusted vassal which rarely collides with the U.S. demands.
But one serious point of contention is open between the two nations and threatens to blow up the relation.
Earlier this year Trump had imposed a 25% tariff on U.S. imports from Japan. The previous prime minister had ‘sold the house’ to lower that rate:
So desperate was now-former Prime Minister Shigeru Ishiba to lower Donald Trump’s 25% tariffs on Japanese products to 15%, especially on automotive products, that he signed on to an incredible surrender regarding Tokyo’s promise for the government to invest $550 billion in the US over the coming three years.
Not only does Trump get to choose the projects and the US get the lion’s share of any profits, but if Japan dares to reject any of Trump’s schemes as nonviable, Ishiba has given Trump permission to impose even higher tariffs. The jointly-signed Memorandum of Understanding (MOU) says that, “In the case where Japan elects not to fund [a project Trump has named—rk], the United States may also impose tariff rate or rates on Japanese imports into the United States at the rate determined by the President [emphasis added].”
The total surrender took the form of a Memorandum of Understanding which did not require a vote in the Diet. But the enormous amount of money it pledges to invest in the U.S. would need parliamentary approval. There was and is practically not chance that anything like it would pass. The ‘investment’ would blow up Japan’s government budget. It would also increase the U.S. trade deficit with Japan.
The completely unbalanced agreement was one reason why Ishiba was ousted from his position.
I had wondered how Takaishi would handle this most important issues. But it seems that both sides have agreed to ignore it:
Inside a gold-drenched palace in Tokyo on Tuesday, President Trump heaped praise on Sanae Takaichi, Japan’s new prime minister, telling her that their countries were “allies at the strongest level” and vowing to come to Japan’s aide on “any favors you need.”
The leaders signed two vaguely worded agreements — one declaring a “new golden age of the US-Japan alliance,” and another to cooperate on expanding the supply chain for rare earth metals — but there was little sign of any breakthrough in the details of the trade deal both countries signed onto in July.
There was no public talk about a major point of contention between the two countries: the details of how Japan intends to spend a promised $550 billion investment into the United States. The promise came as part of the trade deal, and in return for the large investment, Japan was to receive a 15 percent tariff on its exports — a lower rate than Mr. Trump had initially threatened.
Instead, both leaders focused more on what they had in common …
Another report says that the deal was mentioned on the sideline but that nothing was done to resolve its problems:
Trump’s trip to Japan was an early test of whether Takaichi could build inroads with the American president as the countries grapple with security commitments, trade tensions and the threat of China. Japan faces a daunting promise to invest $550 billion in the United States in exchange for lower tariff rates, and Trump administration officials have signaled they want Japan to pay more money to host U.S. troops.
…
Over a lunch of American rice and beef cooked with Japanese ingredients, the prime minister presented Trump with a map of the investments Japan is making into the United States, after the country committed to pour $550 billion into the United States in exchange for lower tariffs. In return, Trump signed lunch menus for Takaichi and her delegation.
“Look, I got a lunch menue signed by Trump and all I had to pay for it were $550 billion.” I don’t think that’s how the world, outside of Trump’s mind, really works.
Trump wants the money to build a ‘sovereign wealth fund’ which he can use to buy and control shares of U.S. companies.
It is therefore likely that he will insist that Japan fulfills the MoU no matter what. But Japan can not do that and Takaichi will have to solve the problem.
As the issue could create a break in U.S.- Japan relations Takaichi will have to prepare for that to happen. Alastair Crooke detects signs that she is already doing this:
In her first address to the nation, Takaishi said that she would not support the US trade war against China, and would not become an instrument of US economic pressure. She openly criticised Trump’s tariff policy, calling it ‘the most dangerous mistake of the 21stcentury’.
Reuters commented that her stance was wholly unexpected in Washington. A big shock. It emerged that since taking office, the new PM had held a series of meetings with the largest Japanese corporations who had conveyed a unified and urgent message to her: Simply — the Japanese economy would not survive another trade war.
Then, one week after taking office, she openly expressed support for China, executing the biggest foreign policy pivot since WW2. China was no longer the ‘enemy’.
Might this be Japan’s real strategy?
To caress the narcissism in Trump to divert him from a Japanese move towards China which eventually may allow it to break with the U.S.?
I for one would call that a good plan.