Between US and China, Japan finds itself friendless 

TOKYO — The year is off to a dreadful start for Japanese Prime Minister Sanae Takaichi and Asia’s No. 2 economy.

Though it’s not the first blow, news on Tuesday that China is imposing curbs on more than 40% of the goods Japan Inc. exports to Xi Jinping’s economy is quite sobering. The move by Xi’s Communist Party is aimed at “dual-use” exports that could, at any level, be used in military affairs. Nomura Research Institute thinks we’re talking roughly 42% of all goods Japan sends to China.

Ostensibly, this is about Taiwan. In early November, Takaichi enraged Beijing by suggesting Japan might come to Taiwan’s defense if China moved against the island. It provoked what’s arguably the worst tiff between China and Japan since 2010, when barbs were traded over disputed islands in the South China Sea.

This blow comes at a moment when Japanese wages “hit a wall,” in the words of Moody’s Analytics economist Stefan Angrick. Average pay gains slowed to just 0.9% year on year, less than half the 2% rate economists expected and a 3% inflation rate. 

At a moment when the Bank of Japan is raising interest rates, this means things are going from “bad to worse,” Angrick notes.

Stagflation is arriving just as Japan appears to find itself standing alone as President Donald Trump’s White House pursues an aggressive foreign policy that Tokyo didn’t anticipate.

Trump’s trade war and the tariffs are one thing. Since taking office in October, Takaishi’s government has walked on eggshells to stay in Trump’s good graces. In the days since Trump ordered the capture of Venezuelan President Nicolás Maduro, officials in Tokyo have been trying to catch their diplomatic breath.

The daring operation has Chinese cyberspace buzzing with calls for Xi to use Trump’s playbook to seize Taiwan, which his party sees as a renegade province. It’s also fueling worries that Russia might read Trump’s Venezuela adventure as a green light to expand its campaign in Ukraine — and perhaps to a NATO country.

Such questions are nothing short of existential for Japan, which, since World War II, has relied on the US for protection. At this point, Takaichi’s Liberal Democratic Party has every reason to question if the Trump administration really has its back.

It’s hardly news that Trump isn’t a student of US-Japan history. In March, Tokyo’s political establishment was aghast to hear Trump complain publicly about Japan: “We have to protect them, but they don’t have to protect us.” Trump seemed to have no idea that this was precisely the agreement Harry Truman’s White House imposed on Japan following its surrender in 1945.

During the Trump 1.0 presidency, from 2017 to 2021, the US demanded that Tokyo pay $8 billion annually for the privilege of hosting U.S. troops. Then-Prime Minister Shinzo Abe, Takaichi’s mentor, managed to avoid having to make such payments.

Of course, Trump 2.0 has a bigger extortion scheme: demanding a $550 billion “signing bonus” in exchange for a 15% tariff rate in trade talks. Not surprisingly, Takaichi has been in no hurry to start wiring funds to Trump. Tokyo hopes the Supreme Court will save it by affirming a lower court ruling that Trump lacks the authority to impose import taxes.

But as 2026 unfolds, Takaichi’s Japan can be excused for feeling more isolated than it expected in 2025. For Takaichi, an early glimpse came in November. Rather than side with Japan following Takaichi’s support for Taiwan, Trump was eerily silent.

For national security wonks, it was a reminder of the extent to which Trump 1.0 took Japan for granted. In his first term, Trump had no better ally than Abe. In November 2016, Abe was the first world leader to rush to Trump Tower in New York to congratulate the president-elect and sing his praises. In the years that followed, Abe showered Trump with flattery, lavish gifts and a nomination for the Nobel Peace Prize.

Abe got little to nothing in return for his obsequiousness. Trump ignored Abe’s pleas that the US stay in the Trans-Pacific Partnership, the cornerstone of Japan’s strategy to rein in China. Abe didn’t score Japan a pass on steel and aluminum tariffs. Trump hung around with his pal, North Korean tyrant Kim Jong Un, at the expense of Japan’s national security concerns.

Takaichi has tried to walk her own tightrope with a Trump 2.0 gang that has little use for maintaining America’s most trusted relationships. This act is becoming increasingly precarious as the US economy slows and Trump’s approval rating declines. Odds are good that as Trump 2.0 finds itself in a rut, the president will lash out abroad.

China and Europe are likely to get the worst of it. It’s bound to dawn on Trump that Xi is stringing him along on a trade deal. This is thanks to the success Beijing had outmaneuvering Trump World in 2025. 

The ways in which Xi’s party wielded China’s dominance over rare-earth materials to extract concessions must have heads spinning among Trump’s trade negotiation team. In late October, Trump even secured a one-year truce in trade talks.

At the same time, Xi’s government isn’t likely to sit quietly as Trump tries to seize Venezuela’s oil. China has spent years — and tens of billions of dollars — investing in Venezuela’s refineries and infrastructure. It’s made China Venezuela’s largest oil buyer and its top creditor as the US tightens the noose.

It’s hard to imagine the most powerful Chinese leader since Mao Zedong just forfeiting the nation’s energy contracts in Venezuela — or whichever country Trump might move against next.

Europe could also be in Trump’s crosshairs. He might, for example, grow impatient that the European Union isn’t sending the US$600 billion “gift” the US demanded in return for a 15% tariff. Nor is South Korea in a hurry to wire the US$350 billion Trump is expecting. All countries involved are hoping the US Supreme Court saves the day by ruling that Trump’s tariffs are illegal.

Yet the risk is that Trump might try to regain the economic narrative with some fresh shock-and-awe on the tariff front. That could unnerve already frothy global markets as the artificial intelligence trade reaches a fever pitch.

That goes for Takaichi’s Japan, too. This week, the Nikkei 225 Stock Average rose to a record high just above 52,500. It’s quite a run for an economy beset by stagflation, tepid wage growth, a central bank hiking rates and a political system that hasn’t put a major reform on the scoreboard in a decade.

The AI trade gets much of the credit for this bull run. But so do moves over the last 12 years to strengthen corporate governance. Since there have been no financial upgrades of note since then, investors have every reason to worry that gains in the market are running far ahead of the underlying economy.

Takaichi’s 79 days in office have hardly been a reformist whirlwind. Some might argue it’s still early days for her government. Looked at another way, Takaichi has something like nine and a half months left to impress her party. Twelve months, after all, is all the time most Japanese leaders get in power. Since 2006, eight of the previous 10 prime ministers came and went in 365 days with little to show for them.

That is getting harder as China sends fresh economic headwinds Japan’s way. And as the all-important US alliance is increasingly in doubt. If it unravels on Takaichi’s watch, she almost certainly will be a short-timer.