Japan might take a leadership role in global free trade if the United States piles on tariffs and rejects multilateral institutions, some analysts and business leaders argue. It could find opportunity in the turmoil while avoiding direct confrontation with its ally.
“I think Japan will likely aim to show its presence as a champion of free trade,” said Tomohisa Ishikawa, chief economist at the Japan Research Institute.
U.S. President Donald Trump has made tariffs a key policy tool of his administration. He is threatening China, Mexico and Canada with higher rates within days and has contemplated higher levies globally, with countries having a high trade surplus being singled out.
Countries with weak currencies are also targeted under Trump’s America First trade policies.
Japan could be hit hard. It has significant manufacturing capacity in Mexico, Canada and China and maintains a persistent and sizable trade surplus with the United States, while the yen has been weakening since 2020.
So far, Tokyo’s reaction to Trump’s tariff threats has been relatively diplomatic.
While some countries have lined up retaliatory measures and made their intentions well known, Japan has opted for a low-key approach.
It has gone on a charm offensive, highlighting investment in the United States and seeking dialogue, while quietly hedging its bets and increasingly emphasizing open markets.
“Japan is connected to the world through the sea, so the country needs to lead free trade. I believe Japan should be a country that is respected by the world through such efforts,” Ishikawa noted.
Japan stepped up to leadership roles during the first Trump administration.
When the president pulled the United States out of the Trans-Pacific Partnership in 2017, the country played a significant role in preserving it as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership with the remaining members.
The United Kingdom has since joined, and China has expressed interest in the grouping.
During his recent presidential campaign, Trump said he would reject the Indo-Pacific Economic Framework for Prosperity, a new U.S.-led economic initiative championed by the administration of his predecessor, Joe Biden. Japan is a member of that grouping.
Japanese businesses see a larger role for Japan if global trade breaks down and multilateral trade institutions become less effective without U.S. participation.
“The significance of free trade will be diminishing, and international organizations, including the World Trade Organization, will become less effective,” said Takeshi Niinami, chairman of the Keizai Doyukai business lobby, during a news conference in November after the U.S. presidential election.
“It is critical for Japan to take a leadership position to facilitate cross-regional free trade and investment. Moreover, strengthening our relations with the Global South, such as India, is essential.”
Japanese companies are already responding to what could end up being the most bitter trade war since the 1980s. Some are shifting production away from hot-seat countries such as China and toward markets not yet in the crosshairs, such as Thailand. They are also looking for new markets to make up for possible loss of sales in the United States.
Local press reports indicate the Japanese government has been discussing countermeasures to implement should Japan be targeted, without elaborating on what they may be. Analysts suggest these might include keeping the currency weak and buying more defense equipment from the United States to address the trade imbalance while at the same time addressing Trump’s criticism of low defense expenditures by allies.
“Japan could offer increasing defense equipment purchases to the U.S. as a way to mitigate the trade imbalances. I believe there is room for increasing defense equipment purchases ahead,” said Norihiro Yamaguchi, a senior Japan economist at Oxford Economics.
Some concern is being expressed about the power vacuum in Japan. With Prime Minister Shigeru Ishiba leading a minority government, bold moves domestically and globally might be difficult.
“Without a stable domestic administration, it’s tough to effectively exert power in foreign affairs,” Ishikawa said.
Unless domestic politics becomes stable at some point, it might be a challenge for Japan to take on a leadership role, he added.
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