Japan and the Trade War

“China’s ripping us off. Japan’s ripping us off. Mexico’s ripping us off. Canada’s ripping us off. The whole world is ripping us off. There’s nobody that’s not ripping us off.” – President Donald J. Trump, at a 2018 campaign fund raiser.


In the face of the escalating trade war initiated by President Trump against China, Japan is pursuing a strategy of building bilateral trade relationships to mitigate harmful effects of this war on the Japanese economy. As he has done with China, the EU, and now, the United States: Prime Minister Shinzo Abe agreed on September 27, 2018, after years of hesitation, to enter into a bilateral trade agreement with America.


Kiuchi Takahide, the executive economist at the Nomura Research Institute, in his September 20, 2018 article reports that “focusing on the impact of the trade war on Japanese industry, it is anticipated that its auto industry will take the biggest hit.” As the US economy takes a hit from the trade war, he argues, Japan’s auto industry, due to its “heavy reliance on exports to the U.S. market…would mean a tremendous loss for the future prospects of the Japanese economy.” In addition, facing the threat of possible tariffs to Japan’s key industrial export, it seems Abe relented.


Japanese business leaders are worried about the progression of the U.S.-China trade war. Nikkan Kogyo Shimbun on September 28th, 2018 reported that 76% of business leaders in a survey feared the trade war will have a negative impact on Japan’s industries, especially on “iron, steel, fabrics, automobiles, and electronics.”


In response, Japanese manufacturers, according to an article published in Nippon Keizai Shimbun on September 22nd, 2018, are shifting their manufacturing bases and area of imports with a “long term perspective” in mind. Firms such as Honda, Mitsui, Sumitomo, Marubeni, and Uniqlo, among many others, are moving operations to places like Thailand, Vietnam, and Brazil from both China and the U.S.


Japan is building relations with other countries. Along with the free trade agreement Japan signed with the EU on July 17th, 2018 covering almost a third of the world’s economy, it seems the Abe administration, emboldened by a recent electoral victory, is warming up politically to China and other countries as well.


In an interview with Sankei Shimbun on September 2nd, 2018, Prime Minister Abe stated that relations between Japan and China have “completely returned to a normal trajectory.” As the trade war progresses, Japan is considering taking part in a China-backed free trade deal that would incorporate 16-nations, 10 Asean members, as well as China, Australia, India, New Zealand and South Korea, covering about half the world’s population and a third of its GDP. It is reported Japan is “proactive” to this proposal. On September 22nd there were calls for a free trade deal between China, Japan, and South Korea.


Thus we see that Japan is not sitting idly by as the destructive effects of the U.S.-China trade war continue to manifest themselves. As seen in the examples above, Japan under Abe is indeed proactive: signing or initiating negotiations of free trade deals with global players while shifting its business operations to other parts of the world under a long-term perspective. Japan is making bilateral trade agreements, and has decided to pursue such an agreement with the U.S. In addition, it has taken robust foreign policy initiatives such as the Trans Pacific Partnership plus 11 and the strengthening of ties with India.


U.N. Secretary General Antonio Guterres describes the current global reality as an “increasingly chaotic world order.” Japan is getting ready to take on this new world order with full force.