Japan Institute for National Fundamentals

　
Following the imposition of additional tariffs on steel and aluminum products, U.S. President Donald Trump has vowed to introduce “reciprocal tariffs” that would raise U.S. tariffs to the same level as trading partners’ trade barriers and impose additional tariffs on automobiles in April. In response, Japanese Economy, Trade and Industry Minister Yoji Muto visited the United States for meetings with Commerce Secretary Howard Lutnick and other officials last week.

Prepare countermeasures

Regarding additional tariffs on steel and aluminum products, Muto requested an exemption for Japan but failed to get a nod. The key to future developments will be the actions by U.S. users of Japanese products. If they complain that their production would be affected by the tariffs on high-quality Japanese products and urge the U.S. government to exempt them from the tariffs, the government may move to make adjustments.

Japan needs not only to request its exemption from the tariffs but also to seek international cooperation. As the U.S. and China enter a major-power game, cooperation among middle-power countries will become important. In order to come into line with other countries, Japan should be prepared to take countermeasures such as filing complaints with the World Trade Organization and imposing retaliatory tariffs on the U.S. products.

Automobile tariffs violate trade pact

Preventing additional automobile tariffs is a top priority for Japan. Lutnick announced that auto tariffs would be levied on all foreign countries including Japan. In response, Japan should take a carrot-and-stick approach

First, regarding the stick, Japan should use Japan-U.S. trade agreement, that was signed in 2019 during the first Trump administration, as a leverage. Japanese Prime Minister Shinzo Abe told the National Diet at the time that he and Trump affirmed no additional tariffs would be imposed on Japanese automobiles. The Japanese side should show the spirit to press the U.S. side, saying that additional tariffs are in violation of the agreement.

Regarding the carrot, what is important for Japan is to provide Trump with achievements that he could sell to American voters toward next year’s midterm elections that are the biggest matter of concern to him. It is important for Japan to emphasize that Japan’s investment in the U.S. contributes to U.S. production and employment. But, instead of announcing respective investment projects, Japanese companies should put their projects together into a big picture that could be used as an effective bargaining chip for bilateral negotiations. We would also like to take this opportunity to review Japan’s high tariffs on rice and other agricultural products from the perspective of increasing the competitiveness of Japanese agriculture.

Prime Minister’s Office required to lead negotiations

For dealing with Trump, who has promised “energy dominance” by the U.S., energy cooperation will also be effective. It is good for Japan to be positive about buying U.S. liquefied natural gas (LNG), but the only on condition that the price is reasonable.

The focus of attention is natural gas development in Alaska. The development plan has been in place since the 1970s. But U.S. oil companies have withdrawn from the project because it is not commercially feasible to lay a long-distance pipeline on permafrost soil. Of course, private companies in Japan and South Korea are also negative about it. If LNG is procured at high prices, it will push up electricity bills to the disadvantage of consumers. Japan may be required to tactfully buy time for negotiations while showing an apparently positive attitude about the Alaskan project.

In addition, Japan’s cooperation with the U.S. shipbuilding industry is effective as a “contribution card.” Japan should offer this as its wider cooperation with the U.S. defense industry.

This will require a response on the Japanese side that goes beyond the bureaucratic sectionalism. What is important is a system led by the Prime Minister’s Office. Japan-U.S. negotiations would not end up as mere tariff talks. A strategy for broad industrial cooperation between the U.S. and Japan must be drawn up as soon as possible.

Masahiko Hosokawa is a professor at Meisei University and a former director-general of the Trade Control Department at Japan’s Ministry of Economy, Trade and Industry. He is also a Planning Committee member at the Japan Institute for National Fundamentals.