TOKYO — Call it the economic bigotry of low expectations.
Japanese and international media outlets are tripping over each other trying to spin Prime Minister Shigeru Ishiba’s first meeting with Donald Trump last Friday (February 7) as a smashing success.
It’s made for odd headlines given how few, if any, deliverables with which Ishiba returned to Tokyo – or even hints some might be coming. Of course, in the wildly chaotic Trump 2.0 era, Trump not attacking a world leader after the fact on social media is its own small victory.
But two days after Ishiba visited the Oval Office, the US president reminded Tokyo’s political establishment that Japan’s economy is in Trumpian harm’s way.
Trump’s announcement that 25% tariffs are on the way for all steel and aluminum imports served up echoes of Japan’s experience during Trump 1.0 from 2017 to 2021. That was back when then-Prime Minister Shinzo Abe supposedly developed a strong bond with the famously transactional Trump.
Even today, the late Abe is widely remembered as the “Trump whisperer,” the only leader of a major democracy who seemed able to tame Trump’s worst impulses. Yet this is only half true, at best.
There’s no doubt Abe understood Trump’s need for flattery. In November 2016, after Trump 1.0’s election victory, Abe was the first world leader to rush to Trump Tower in New York for an audience. Abe even vouched for the “America First” presidency in the most glowing terms.
“I am convinced Mr Trump is a leader in whom I can have great confidence” and “a relationship of trust,” Abe told reporters that day.
Abe’s instincts didn’t age well. Despite Abe’s pleas, Trump exited the US-led Trans-Pacific Partnership (TPP), the core of Tokyo’s effort to contain China. Nor did Trump 1.0 give “friend” Abe a waiver on steel and aluminum taxes.
Expensive gifts — including Abe giving Trump a US$3,800 golf club — didn’t do the trick. Nor did Abe nominating Trump for a Nobel Peace Prize. Worse, Trump humiliated Abe within Liberal Democratic Party circles by bragging about the nomination. And the ruling LDP was none-too-happy that Trump’s weird kinship with North Korean tyrant Kim Jong Un came at the expense of Japan’s national security.
None of this groveling bought Japan much, if any, goodwill from Trump. In fact, it took Ishiba fully 94 days to get an audience with Trump since November 5 — his chance to forge an Abe-like “bromance.”
But for all the positive-spin coverage in the Japanese and foreign media, Japan finds itself directly in the collateral damage zone. Sunday’s tariff news makes that clear enough. So does the fact that Trump 2.0 is acting as if Ishiba’s Japan is more superfluous than observers want to admit.
This week’s Washington visit by Indian Prime Minister Narendra Modi is enjoying considerably more fanfare than Ishiba’s. Odd, considering Trump 1.0 had no better ally than Tokyo.
Part of the disconnect is that Trump 2.0, for all its China-bashing tendencies, is likely focused on scoring a massive Group of Two trade deal with Xi Jinping. Hence his disinterest in forging a solid bond with Ishiba.
One reason Trump might not bother: Ishiba is about as popular with voters as former US leader Joe Biden. With national elections slated for July fast approaching, Ishiba’s odds of keeping his job aren’t great. Team Trump might see little point in investing in a government running on fumes.
Either way, there’s virtually no scenario where Trump 2.0 goes well for Japan. On top of Trump’s tariffs on steel and aluminum, Japan is bracing for Trump’s response to Chinese leader Xi’s retaliatory steps following the 10% tax Washington slapped on Beijing.
Odds are, too, that Trump’s anti-China trade advisers are prodding him behind the scenes to hit Xi’s economy doubly hard.
On Friday, the same day he met Ishiba, Trump declared he would soon unveil a series of reciprocal tariffs on any number of key trading partners. As such, economists at Morgan Stanley don’t see Trump stopping at just 10% tariffs on Chinese goods.
“We still expect the US will levy more tariffs on China later this year as part of its larger trade policy goals,” they argue in a note. That, they note, could provoke a cycle of tit-for-tat trade curbs.
Analysts at Oxford Economics add that the “trade war is in the early stages so the likelihood of further tariffs is high.” As such, Oxford Economics is in the process of downgrading its China growth trajectory in 2025.
That spells big trouble for Japan, as Ishiba’s main trading partner faces intensifying headwinds. At home, retail sales are struggling at a moment when the Bank of Japan is tightening credit — and determined to keep going.
“The global macro landscape has gotten more volatile since Donald Trump came back to office,” says Masahiko Loo, strategist at State Street Global Advisors. “The potential mix of policies pursued by the new administration is deemed to benefit the US dollar, putting further downward pressure on the yen. This allows the BOJ to consider lowering the policy rate differential with the US, increasing the likelihood of another rate hike.”
The BOJ’s consumption activity index, adjusted for travel, fell 0.5% in December from November. It’s a “surprisingly poor result,” Angrick says. Consumption of durable and non-durable goods, meanwhile, dropped 1% and 0.7%, respectively. Across 2024, consumption fell 0.7%.
“The disappointing run of data is difficult to square with the BOJ’s claim that domestic consumption is increasing moderately,” Angrick notes. “Real wages have been falling for nearly three years, stretching household finances and weighing on consumption. Better wage growth should lift consumption later in 2025, but with inflation sticky, the recovery will be slow.”
This is even before Trump 2.0 hits Asia with the tariffs that top trade advisers like Peter Navarro have long advocated. Economists at UBS think the 60% tariffs Trump has threatened to levy on Chinese goods would cut China’s roughly 5% economic growth rate in half.
As this risk hovers over Asia’s 2025 like a sword of Damocles, economists say it’s best to remain clear-eyed about how little Ishiba actually achieved in Washington last week. This includes the underwhelming “deal” he and Trump claimed to strike over US Steel.
Nippon Steel had been trying to acquire US Steel for about $14.9 billion. Former President Biden vetoed the deal, leaving Team Ishiba hoping Trump, Mr Art of the Deal, might say yes. To no avail. Instead, Trump said Nippon would “invest heavily” in US Steel without being granted a majority stake.
Many are reading it as a win-win for Trump and Ishiba. “Trump’s surprise decision … to support a Nippon Steel investment in US Steel represents a notable win for Ishiba,” says David Boling, analyst at Eurasia Group.
Boling notes that “while the details remain unclear, this announcement is a better-than-expected outcome for Ishiba, and it will likely boost his political standing at home in the short term.”
Trump, Boling adds, had met with US Steel representatives on February 6, “which perhaps paved the way for the new approach. Unlike his predecessor Kishida Fumio, Ishiba has been outspoken in favor of the deal, having even urged Biden to approve it near the end of his presidency.”
As such, Boling says, “Ishiba will be in a good position to claim credit for smoothing the way for a compromise, which may also help to assuage concerns by the Japanese business community that the US was turning against FDI.”
Others are perplexed. Jeffrey Park, head of alpha strategies at Bitwise Asset Management, speaks for many when he notes: “Nippon Steel tried to buy US Steel last year but now instead found themselves investing billions into the US, which Ishiba actually spinned it as a ‘successful’ meeting so then Trump sealed it with his signature kiss of a 25% tariff?”
Welcome to Ishiba’s hell year of trying to project trust and friendship with a US leader looking elsewhere. Also, Team Ishiba settling for a shadow of the transaction Nippon wanted — and appearing to like it — sets it up to get rolled again and again by Team Trump.
What happens, for example, when Trump demands Tokyo engage in another bilateral trade deal? Surely, Trump knows the initial negotiation with Abe was a dud.
“Hailed by President Donald Trump as a major breakthrough, the US-Japan trade deal announced on September 25, 2019, actually does little more than partly restoring the benefits that Trump recklessly threw away when he pulled the United States out of the Trans-Pacific Partnership (TPP),” notes Jeffrey Schott, economist at the Peterson Institute for International Economics.
This economic-bigotry-of-low-expectations problem isn’t new for Japan. To this day, many economists argue that Abe’s 2012-2020 premiership, the longest in Japanese history, was a whirlwind of disruptive reforms that ended deflation and set the nation up for a vibrant future. In reality, Japan is importing much of its inflation as an undervalued yen collides with elevated global commodity prices.
So far, wage gains aren’t keeping up with inflation. That has economists betting that this year will see bigger wage increases. As such, “we expect Japan’s annual spring wage negotiations to produce another solid 5% hike this year while inflation remains above the 2% target, which should keep the BOJ on the hawkish side,” says Barclays strategist Shinichiro Kadota.
Also, Abe – and the three prime ministers who followed – made little progress in reducing bureaucracy, internationalizing labor markets, rekindling innovation, increasing productivity or empowering women. Moves to increase shareholder value have worked, propelling the Nikkei 225 Stock Average to all-time highs in 2014. But broader efforts to increase Japanese competitiveness and boost wages continue to underwhelm.
The answer is for Ishiba to reinvigorate reforms to raise Japan’s economic game. Leaders like Trump only respect strength. Rather than attempting to placate Trump, or coming forward with trade concessions that will never satisfy him, Team Ishiba would be wise to build more economic muscle at home to restore Japan’s global relevance.
Rather than follow the Abe playbook, Ishiba, many observers say, might be better off leaning into the “anti-Abe” persona he had long cultivated. Perhaps a bit more of the energy of the kind coming from Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum might be in order. Both leaders are pushing back at Trump, rather than submit to his trade concession demands.
“Ishiba will be walking on thin ice and needs to woo Trump, but he lacks the subservient qualities that served Abe well and Trump smells desperation,” says Jeff Kingston, head of Asian studies at Temple University’s Tokyo campus.
A first step toward realizing Japan needs a new tack in the Trump 2.0 era is admitting that Ishiba’s Oval Office visit achieved nothing meaningful or lasting. Just hints that Tokyo could be an easy mark in coming trade talks.
Follow William Pesek on X at @WilliamPesek
