In the crosshairs: Trump’s trade war turns on Japan

In the crosshairs: Trump’s trade war turns on Japan

Tokyo’s strong ties to Washington may be jeopardised by the threat of auto tariffs.

WHAT’S HAPPENING?

In late September, the US and Japan announced they would start negotiations on a bilateral trade agreement.

KEY INSIGHTS

– In early September, President Trump hinted at a trade war escalation that could see Japan’s auto-industry hit with tariffs
– Japan will try to avoid tariffs if it can, but warming relations with China may dissuade Tokyo from ceding to Washington’s demands
– A resurgence in Japanese strategic engagement efforts will help insulate the country from a downturn in trade relations
– A serious deterioration in US-Japan relations could spark renewed calls for “normalisation”, the pseudonym for the redevelopment of Japan’s military

The US administration’s ongoing protectionist policies continue to target rivals and allies alike. Citing the need to equalise the trade deficit, protect sensitive industries, and renegotiate ‘bad’ trade deals, the US has embroiled itself in trade wars with its NAFTA partners, the EU, and China — and Japan could be next. According to comments made during an interview in early September, President Donald Trump is considering raising tariffs on the Japanese auto industry.

Japan has remained relatively unscathed so far, but Tokyo appears to be taking the threat seriously. After nearly two years of bold attempts to secure the US-Japan relationship while resisting US calls for a new bilateral trade agreement, Japanese Prime Minister Shinzo Abe agreed to start negotiations just weeks after Trump’s comments. Nevertheless, Abe’s efforts do not guarantee that Japan will escape tariffs, which could deteriorate relations and put stress on the US-Japan alliance — the cornerstone of both US and Japanese regional security policy for over 50 years.

THE GREAT THAW

Japanese Prime Minister Shinzō Abe and Chinese President Xi Jinping shaking hands. / US-Japan

Photo: kantei.go.jp / Wikimedia Commons

In contrast to a possible downturn in US-Japan relations, warming ties with China have seen the relationship between the two countries return to one of its highest points in the past two decades. Last year senior leaders from both sides pledged to bring the two closer together, with Chinese President Xi Jinping calling it “a new start” for Sino-Japanese relations. This year has seen not only the first trilateral summit (with South Korea) since 2015, but also steady visits by ministers from both sides. Abe himself is scheduled to visit China in late October, the first visit by a Japanese prime minister since 2011.

In October, Xi and Abe met on the sidelines of an economic conference where both leaders pledged to improve cooperation on the North Korea issue. This diverges pointedly from US-Japanese cooperation; the US has unilaterally implemented its own agenda with scant consultation with its longtime ally, sometimes even failing to provide prior notice of its announcements. Given the continued importance of the alliance to Japan and Trumpian foreign policy that combines security with economics, Japan will want to stay in the loop on any US-North Korea resolution now more than ever.

All of this coincides with a change in attitude toward Chinese regional projects like the Belt and Road Initiative (BRI) and the Asian Infrastructure Investment Bank (AIIB) among the Japanese leadership. Initially suspicious of both, Japan announced its entry into the BRI in the middle of 2017 and affirmed that it was open to joining the AIIB around the same time. Both projects have been staunchly opposed by the US.

However, this should not be taken as a complete pivot to China. Japan has been simultaneously continuing its pushback against China’s burgeoning hegemony. In early October, Tokyo announced a staggering 150 new infrastructure projects in the Mekong River region in conjunction with local governments, underscoring Japan’s abiding wariness of expanding Chinese influence.

A NEW DAWN FOR JAPANESE LEADERSHIP AMBITIONS?

The renewed commitment to China is not a one-off. Rather, the uncertainty resulting from the drastic change in the US regional posture seems to have fueled a resurgence in Japanese engagement with key strategic partners all across the globe — to levels not seen since the ‘lost decade’ of the 1990s.

Over the past two years, Japan has deepened cooperation on both trade and security to hedge against the global US pullback. This includes concluding a historic trade deal with the EU and successfully resurrecting the Trans-Pacific Partnership, as well as re-launching the Quadrilateral Security Dialogue with the US, India, and Australia.

Progress has even been made with Russia despite Western sanctions over the annexation Crimea and the Russo-Japanese territorial dispute over the Kuril Islands. At an economic conference in September, Russian President Vladimir Putin took the unusually conciliatory step of agreeing to promote economic programs on the disputed islands and even surprised Abe with an offer for a peace treaty.

THE CHANGING FACE OF REGIONAL TIES

2016-DG Li speaking at AIIB Seminar - Financing Green Infrastructure The Role of the MDBs / US-Japan

Photo: UNIDO/Flickr

In this context, the threat of US tariffs takes wider-ranging ramifications beyond the two powers involved. Domestically, anti-US sentiment — borne out of years of resentment toward US military bases on Japanese soil — has been on the backburner since the deterioration of Sino-Japanese relations earlier in the decade. However, resentment toward the US could quickly re-emerge considering Japan’s newfound assertiveness, and with China and Russia increasingly playing the friend and the US the foe.

To appease voters who want steady economic growth and high employment, Tokyo will need to evade tariffs, even if this means accepting an unequal treaty. Ironically, such a deal would be liable to stoke anti-US sentiment. But if negotiations fall through and tariffs are imposed, the anti-US backlash will be even more severe. Either way, Tokyo’s efforts to hedge against Washington’s trade policies will only increase, barring a shift in the US administration’s mindset or renewed antagonism from China.

The latter point is unlikely to emerge. Beijing will try to take advantage of the split as much as possible by keeping Japan amenable to further isolate the US. Similarly, Japan has much to gain from improving relations and will seek to deepen engagement. An early sign would be Japan’s accession to the AIIB, which looks increasingly likely within the next few years.

While less likely, a serious deterioration of US-Japan relations could trigger renewed calls for “normalisation” of the country’s military forces. Sufficient anti-US sentiment would play into Abe’s long-term ambitions to amend the constitution and legitimise Japan’s armed forces by removing the ‘pacifist’ clause. The impact of a remilitarised Japan would not just affect the US-Japan security treaty but would ripple across the entire network of US regional alliances and have repercussions for the future US presence in Asia.

A remilitarised Japan would also feel less pressure to appease the US and may decide to join others in raising retaliatory tariffs, putting further strain on the global economy and placing the US in a trade war with eight out of ten of its largest trading partners. This could prompt other US allies — such as South Korea, which was blindsided earlier this year with metal import quotas despite negotiating out of tariffs, and surprised by a tariff on washing machines — to follow if they feel that the US position is weakening.

Recent breakthroughs with the USMCA and US-EU trade truce have diminished the chance of this occurring. However, if a wider trade war does gain traction and enough countries jump on board, it could escalate the protectionist brinkmanship to a level difficult for the even the US administration to justify. Such a scenario poses dire consequences not just for every economy involved, but for the very notion of US primacy and the post-war global order.