Donald Trump isn’t known to be a kabuki fan. But this week, his White House had an intimate look at the classical Japanese dance-drama medium as trade talks took center stage.
The first act was performed in the US capital Monday and Tuesday. There, Japanese Prime Minister Shinzo Abe’s negotiators agreed in principle to fast-track a bilateral deal. Desperate for a triumph on the world stage to outshine scandals, President Trump hopes his pal Abe will give him a curtain call.
That is surely the role Washington expects Toshimitsu Motegi to play as Japan’s economy minister. But kabuki doesn’t work that way, and Trump’s man Robert Lighthizer would be wise to study up.
Plot twists and hidden motives can take the narrative in surprising directions. And thus far, Abe’s team appears to be keeping the script close to the vest. The reason is Japan finds itself in a stronger position than it did 12 months ago.
As Motegi told reporters in Washington Tuesday night, the talks are “at an early stage.” The only bit of news is that the talks will include digital trade, such as e-commerce, as well as agriculture and other goods.
Still, Motegi’s laid-back timeline is really what matters. It’s not what the Trump White House wants to hear.
Trump’s trade war
The idea Japan is in a stronger position may sound odd considering recent data. Exports plunged 2.4% in March from a year ago, the fourth consecutive monthly drop. Sentiment among large exporters, measured on a quarterly basis, recently fell the most in six years.
Sliding manufacturing activity offers additional evidence that Trump’s trade war is slamming Asia’s second-biggest economy.
But two things have changed since Trump began slapping 25% tariffs on US$250 billion of Chinese goods. One, Japan stayed in the Trans-Pacific Partnership, a US-led deal on which Trump reneged in his first week in office. The 11-nation pact came into effect at the end of 2018.
Already, the resurrected TPP has cracked open Japan’s agricultural sector. Taxes on chilled beef imports, for example, fell to 27.5% from 38.5% – on the way down to 9%. Abe’s government also signed a long-negotiated deal with the European Union. It gives Abe more street cred on freer trade than the mercantilist Trump.
All Trump needs to do to win greater access to Japan is rejoin predecessor Barack Obama’s giant trade deal. Abe’s team has been angling to get Trump to do just that. To strengthen the case, Team Abe could point out that, so far this year, US pork shipments to Japan are down 35%.
Japan’s beef imports from TPP members are surging. American barley farmers are losing contracts to Japan. Who knows, maybe rebranding it the “Trump-Pacific Partnership” would draw him back in.
This gives Tokyo leverage, particularly with the 2020 election in full swing. Trump also faces a unique confluence of pressures at home, from Russia-related investigations to Congress demanding his tax returns. His need for a win, and fast, could play in Abe’s favor.
Watered down demands
The second thing that’s changed is the way China is outfoxing Trump’s negotiating team. Word is, the White House is watering down demands that Beijing curtail industrial subsidies. Isn’t that the whole ballgame?
The idea was wielding tariffs to force a wholesale change in China’s state-champion model to level the mainland playing field.
Odds are, Trump will come away with 12 months of jousting and brinksmanship with little more than vague pledges. China will promise to buy more US goods, do better on protecting intellectual property rights and rename “Made in China 2025” so as not to trigger Trump’s inner circle. Xi also is likely to escape having to revalue the yuan higher.
Motegi, Abe’s negotiator, will surely take note of all this. Trump’s eyes are on Japan’s $68 billion trade surplus. Yet he’s getting an earful from farmers in the American Midwest about the fallout from his tariffs. Next, it might be American consumers who turn on the protectionist president.
A key Trump priority is curbing Japanese car exports to the US. He’s threatened 25% taxes on imports of cars and auto parts. That would punish middle-class consumers hoping to buy higher-quality, more fuel-efficient vehicles than Detroit offers.
Nor will Trump achieve a big increase in autos entering the US market. Trump might not know this. Abe’s team surely does.
Motegi, meantime, is displaying his kabuki skills on the Japanese yen. Rather than go along with Trump’s timeline for a quick deal, Motegi is kicking talks about a currency pact upstairs – to Deputy Prime Minister Taro Aso.
Herein lies the gist of Act 2. Part delay tactic, part hardball. Three-plus decades ago, Tokyo bowed to Ronald Reagan’s White House and accepted a stronger yen. Abe is loath to repeat the mistake, a dynamic on display in Washington this week.
It’s an intricate dance, of course. Abe must go through the motions with the drama-rich Trump crowd. The key is to play along as much as possible, lest Tokyo becomes Twitter-attack fodder. But if Trump thinks Japan is going to be easily rolled on trade, he’s missing the plot.