President Donald Trump has moved at dizzying speed to raise American tariffs to levels not seen since the last century. He has used tariffs to punish the United States’ largest trading partners (Mexico, Canada, and China) for non-trade offenses, targeted key industrial sectors such as steel and automobiles, and rolled out a universal 10% tariff to cover all imports into the United States and hefty “reciprocal tariffs” on close to 60 economies. After tit-for-tat retaliation and financial market turmoil, the U.S. tariff on China stands at 145%.
No wonder the Trump shock has shaken Japan. Prime Minister Shigeru Ishiba’s offers of brisk Japanese investments and new U.S. manufacturing jobs did not spare Japan from the 25% auto and metal tariffs and a steep 24% “reciprocal duty” on all Japanese exports, despite that Trump has suspended all U.S. “reciprocal tariffs” for 90 days. Japanese officials dispatched to Washington to seek tariff exemptions returned empty-handed. And as the magnitude of the tariffs came into focus, the economic outlook for Japan darkened significantly. According to some estimates, Trump’s tariffs may cost 0.8% of Japanese economic growth, while the Nikkei dropped by close to 9% in a single day on April 7.
Japanese leaders have scrambled for a response. Ishiba is right to call Trump’s tariff offensive a “national crisis.” He has taken some initial steps to meet the moment: convening leaders from opposition parties in an attempt to forge a political consensus; setting up a task force to provide immediate assistance to small firms who will need real-time information on tariff impacts as well as an economic lifeline to stay afloat; and starting negotiations with the United States. In a phone call conversation, Trump and Ishiba agreed to set up cabinet-level negotiations. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer will lead the U.S. side, while Economic and Fiscal Policy Minister Ryosei Akizawa, a close Ishiba ally, will represent Japan.
Tokyo is understandably relieved that Japan has received priority in trade negotiations with the Trump administration. The stock market rallied on the news that the punitive tariffs may be negotiated down. But tactical measures are insufficient to adjust to the defection of the world’s largest economy from the free trade system. That will require a long-term strategy and hard work on (at least) four lines of effort.
Factor in MAGA’s “economics first” approach
For the Trump administration, madness is the method. And while Trump’s actions sow a lot of confusion, some of his motives are discernible. The rejiggering of trade relations can best be understood as an odd mixture of victimhood syndrome and hegemonic swagger. To listen to Trump and his closest advisors talk about U.S. trade relations with the world is to hear a story about cheating and exploitation by others, with trade deficits offered as irrefutable proof. This notwithstanding the fact that the United States remains the largest, most prosperous, and most technologically advanced nation in the world. These national strengths are, in fact, what give Trump’s tariffs bite: he can leverage others’ dependence on America’s market, capital, and security guarantees to dictate new terms.
Trump is an “economics first” president. Not only is the trade agenda a top priority for his administration, but his approach to some of the thorniest security crises frequently reverts to a bottom-line presumption linking security issues to his economic agenda. A minerals agreement with Ukraine was geared to give Trump a stake in supporting a beleaguered, invaded nation. And in a Signal chat, Trump’s national security team expected Europeans to pay for the U.S. opening of shipping lanes in the Red Sea. The chair of the Council of Economic Advisors, Stephen Miran, has been crystal clear: the United States expects to be paid for providing public goods like a reserve currency and a security umbrella. Payments can be made through higher tariffs and/or sending checks to the U.S. Treasury.
The MAGA project, therefore, expects to extract rents from the world. There is no whiff here of spheres of influence, but rather a global resetting of terms to the U.S. advantage. And the value of security partnerships must pass the economics-first litmus test.
Set realistic expectations regarding durable negotiation outcomes
As Japan starts negotiations with the United States, it must be mindful that trade deals negotiated with Trump may have a short shelf life. Trump, in fact, violated the terms of trade agreements negotiated during his first administration, such as the U.S.-Mexico-Canada or the U.S.-Japan trade agreements, with the recent imposition of unilateral tariffs. As such, Tokyo should view the current negotiation as a damage reduction exercise, but not a stable equilibrium. For Trump, these are not commitments that bind.
It would be wise to temper expectations about the results that can be achieved at the negotiation table. While the Trump administration has been foggy on which duties are negotiable, it is conceivable that the universal tariffs are off-limits (after all, how will they be universal if exemptions are made?). Moreover, the formula used by the Trump administration to calculate the “reciprocal” tariffs (simply looking at the goods trade deficit as a share of U.S. imports) has no economic rationale since trade balances reflect macroeconomic forces, comparative advantage, and consumer choices. But the formula yields highly inflated tariff rates. Japan could be walking into a negotiation where it “pays” to lower the “reciprocal” tariffs through unilateral concessions that may go beyond trade topics—including currency policy or defense burden-sharing—without receiving new market access opportunities in the United States.
Build resilience to coercive trade practices from an ally
In the short and medium term, Japan should pursue negotiations with the United States. However, a single negotiation front with an unpredictable America will not serve the country in the long term. Rather, Tokyo should tap into the two important assets it has built since Trump first arrived at the White House: its economic security apparatus and its clout as a trading network power. De-risking and diversification should be the North stars of Japanese statecraft.
Trump’s global trade war has certainly degraded Japan’s geoeconomic environment and underscored new areas of vulnerability as Washington uses economic ties as levers of pressure. To chart a path forward, Japan should rely on the key concepts of strategic autonomy and strategic indispensability and the policy tools of its Economic Security Promotion Act. There is more knowledge today on how to handle supply chain disruptions and deal with economic coercion. Reducing overdependence on China will not be the same as de-risking from America. The latter entails an infinitely more complex task of building resilience to economic shocks emanating from a security partner. While the logic of alliance management will still counsel Japan to foster robust economic and security ties with the United States, a new logic of risk management must now apply as well. As such, capital-intensive projects (such as a liquified natural gas pipeline in Alaska) may be looked at in terms of not just appeasing Trump in charged trade negotiations but also potentially creating exploitable dependencies in the long term.
Move boldly in expanding Japan’s trade network
Tokyo should strategize beyond the current challenges to its bilateral trade ties with the United States. Reviving momentum on regional and transregional trade initiatives should be a priority. In this area, Japan has a strong record to build on: after Trump withdrew the United States from the Trans-Pacific Trade Agreement in 2017, Japan rescued the agreement with the remaining 10 economies. Tokyo went on to negotiate the Regional Comprehensive Economic Partnership (RCEP)—which includes China—and inked a comprehensive deal with the European Union.
Yet, today’s challenges call for something bigger. While some have noted that the Japan-South Korea-China free trade agreement may finally gain momentum, this will be a promising negotiation for Japan provided it meets two criteria: it offers higher quality liberalization than what is available to these three countries through their shared RCEP membership, and it secures a meaningful commitment from China to discontinue economically coercive practices (a general criteria that Japan has also advocated for membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP). But, despite promises to the contrary, China has slow-walked lifting its ban on imports of Japanese seafood and continues to weaponize the supply of critical minerals.
The CPTPP should once again become the linchpin of Japan’s trade leadership. But instead of pursuing time-consuming membership talks with individual economies, Tokyo should go for the big bang option: cultivating the European Union’s accession. The cost-benefit calculation for this enterprise is entirely new as the world deals with U.S. trade barriers. This would not be a collective effort to fight Trump’s “America First” trade policy with retaliatory tariffs. Instead, it would be about constructing a larger and rejuvenated bastion for rules-based trade. That is what the times call for.
