The Financial Times, owned by Nikkei Inc, has as its lead story today, Japan to hold out for better trade deal with US. The article describes how Prime Minister Shigeru Ishiba is in a corner. The story hints that he really can’t forestall US tariffs or even necessarily negotiate a more complicated deal that might enable Japan to live with its two sticking points: 25% tariffs on cars and auto parts, and a requirement to liberalize agricultural imports. Rice farmers have long been a very powerful group in Japan; I assume any other food interests are also influential.
As we’ll discuss below, the pink paper unwittingly depicts the Japanese as a bit behind the plot. While the tariff threat is the immediate bludgeon to force countries to negotiate new trade agreements with the US, the US is scheming to put in provisions, like restrictions on Chinese foreign direct investment, that even Chinese officials are warning could be far more important in the effort to contain China (assuming the US prevails) than the press seems to recognize. In the only agreement concluded so far, with the UK, the US won the agreement to restrict investment (understood to be Chinese) in strategically important sectors, here steel and pharmaceuticals. Michael Hudson confirmed the Chinese concerns, that the US has in the past used concessions wrested from one counterparty to successful demand the same from others.
Remember that the non-China-EV car industry is in dire shape. I’ve written a bit about the slow-moving crisis at Nissan. Stellantis is in trouble. Volkswagen is closing factories in Germany. Toyota is in trouble. Ford and GM are in trouble. I could give particulars with each one but you can easily verify the broad story line with a search engine. Given what big employers all these companies and their suppliers are (and how EVs are an additional threat by reducing the number of needed inputs), it really is a national priority for countries with a non-trivial auto industry to hang on to as much of this shrinking pie as they can.
Next to the key points from the Financial Times account:
Japan has signalled it is prepared to hold out for a better deal with US President Donald Trump over trade tariffs, pushing for full removal of his 25 per cent duty on imports of Japanese cars rather than risk a domestic political backlash….
Prime Minister Shigeru Ishiba initially made a priority of getting to the US negotiating table ahead of other nations.
But pressure from business leaders and members of Ishiba’s own Liberal Democratic party to reject any deal that puts the car sector at risk or threatens domestic farmers have forced him to recalculate…
Japan’s starting position remains the elimination of all new US tariffs, including a 25 per cent levy on automotive, steel and aluminium imports and a 24 per cent “reciprocal” tariff on other Japanese goods that has since been temporarily reduced to a 10 per cent “baseline” level….
Tokyo’s strongest offers for Washington could be larger purchases of US agricultural products, greater market access for US cars and investment in a liquefied natural gas pipeline project in Alaska, said the officials.
But with the July upper house elections looming, Ishiba has told parliament he will not sacrifice the domestic agriculture industry, also a big employer, to win tariff reductions for automobiles.
The article does not indulge the fantasy among many that Japan would dump Treasuries (it could conceivably refuse to buy more but that would take a while to bite). In fact, the US warning to Japan is along the reverse lines, not to weaken the yen. Effecting that would mean large scale buying, not selling, of dollar financial assets.
It does allude to the fact that Japan is a military protectorate of the US. But could Japan get stroopy if/when the US escalates militarily with China? The US would depend on Japan for assistance. While the Japanese are unlikely to frontally say no, the Japanese are masters of passive-aggressive non-compliance, such as doing the least important 40% of what someone asked for….slowly. But even so, that sort of revenge would not help with the current trade talks.
Now let’s return to the possibility of foreign direct investment curbs aimed at China prohibiting support of particularly deemed to be strategically important sectors. In the UK, that did not include cars. But Germany is trying to advance the barmy plan of converting surplus car factories into tank and armored vehicle factories. So that scheme makes it colorable for the US to try to check Chinese rescues of struggling automakers….which might be as much for geopolitical favoring-reasons as economic reasons.
It does not help that Japan just announced a GDP contraction before tariffs hit, and it was larger than expected.
On top of that, Nissan’s dire condition probably makes it even harder for Japanese politicians to accept Trump auto tariffs (not that he can’t still impose them willy-nilly. Recall a planned Honda rescue merger fell apart. More detail comes in a new Bloomberg story:
Since the dramatic downfall of its “Cost Killer” Chairman Carlos Ghosn in 2018, Japan’s Nissan Motor Co. has labored under an aging model lineup, poor cash flow and management turmoil.
For months the carmaker has been holding out for a financial savior and, despite high hopes earlier in 2025 of joining forces with Honda Motor Co., prospects for a deal fell apart — leaving its future up in the air.
Complicating any hope of a quick turnaround are President Donald Trump’s tariffs on imported vehicles, which account for nearly half of Nissan’s US sales volume.
On May 13, the carmaker posted its worst financial results in 25 years, and announced a restructuring plan that includes closing factories and cutting 20,000 jobs in a bid to stem mounting losses….
The company expects sales in the US — its biggest single market — to decline this year even before the impact of tariffs is factored in. As a result, it has too many cars and not enough buyers. Or as Nissan itself stated all too plainly in its most recent investor presentation: “Fixed costs remain higher than current revenue can support.”
The BBC has just reported on a Chinese state company considering what the Japanese call a tie-up in Nissan’s parts business:
Car maker Nissan says it is open to sharing factories around the world with its Chinese state-owned partner Dongfeng as it shakes up its business.
The Japanese firm, which employs thousands of people in the UK, told the BBC it could bring Dongfeng “into the Nissan production eco-system globally.”
Nissan’s own brands have struggled to make in-roads to China, which is the world’s biggest car market, as stiff competition has led to falling prices.
It has partnered with Beijing-controlled Dongfeng for over 20 years and they currently work together to build cars in the Chinese city of Wuhan.
So the two companies have a pre-existing relationship. But this proposed deal may flush out how far the Trump Administration intends to take their scheme to restrict Chinese foreign direct investment.
The closing of the Financial Times story cited earlier indicates that Japan may not be able to do much to blunt the Team Trump plans:
“The problem Japan has is that, on principle, it doesn’t want a deal that looks hammered-out at speed, but at the same time it cannot rely on the idea that the US has the patience for a sophisticated agreement,” said the official with direct knowledge of the talks.
Stephen Nagy, professor of politics and international studies at the International Christian University of Tokyo, said Ishiba’s strategy was based on the idea the US would value its security partnership over tariffs.
“I think that Japan will realise that Trump is committed to a baseline of tariffs,” said Nagy. “No matter what it does or says, Japan cannot get away from this.”
And on a completely different front, the US trying to use export controls to create “AI vassals”:
This is also about the future of AI for third countries that have not developed their own frontier models. Malaysia is Southeast Asia's top data center hub. Many want to be able to run DeepSeek. They like that it's open source. They like free. But running DS on Huawei Ascend… https://t.co/Y5Z1MGFVdh
— John Pang (@jynpang) May 15, 2025
Needless to say, the Trump trade thuggery is still very much in motion. And let us not forget that his baseline tariffs of 30% on China and 10% on everyone else will have an impact on American consumers and therefore too on exporters, as WalMart’s warning of tariff-induced prices confirmed. In addition, more parochially, it remains to be seen how Southeast Asian countries can adequately satisfy the US on ending/severely restricting trans-shipments from China so as not to be subject to close-to-China level tariffs. Stay tuned.
Japan is a difficult one. As PlutoniumKun also remarked, their response to Trump tariffs was like an atom bomb. Plus, WW2 stuff notwithstanding, they’re working with the Chinese on a world beating EV, that’ll sell, even with massive USA tariffs.
On other hand, Japan is really sticking its head in the sand. I’ve said before and will repeat, my BFF moved to Japan in 1990s. His Japanese got to a level whereby he translated his PHD (with lots of technical stuff) into Japanese for publication there, in addition to the original publication by OUP in UK. He is married to Japanese woman, has a kid and is VERY senior at Tokyo University,
He tells me the “stuff the western media ignores” Like the fact that whilst the LDP appears to be an “elected dictatorship”, it has had different factions be in power at different points since WW2. The “weakest” factions are generally those dependent on agriculture. Guess who got all the Nuclear plants imposed on them due to NIMBYism and “need for water”? Yep. And they DESPERATELY need to move these 50 metres up to avoid a LOT more Fukushimas and spent fuel disasters. But they’ve decided “we’re disappearing as a nation so unless things turn around massively let’s just ignore it”. Whether you agree or not, a lot of Japanese have decided to go “quietly into the night”. Their EV is a last “hurrah” to maybe turn things around…….but there aren’t many thinking this will do so.
And the Chinese EV makers do not need any Japanese help on a technical level. Any tie-up w/Japan partially will be politically driven and using Japanese companies as a politically tolerable reseller.
Toyota (and its minor fiefdoms: Subaru, Mazda) will survive. Honda is on the line. Logically any Chinese tie-up w/Stellantis/Nissan will be driven by Chinese political nudging to throw a life-line to EU and Japanese jobs.
Actually from what I’ve read, it’s a bit more nuanced, as in Chinese know how to produce at scale but there are aspects of (mainly Toyota) proficiency they need to really reduce costs via economies of scale enough to counter Trump nonsense.
You’ve got it right that Toyota is in pole position….. there are lots of rumours about the war chest they’ve built up.
Rice in Japan is so different than anything I can think of in the US.
There are hundreds of varieties, with different polishings all for different parings and uses. Here it’s something you add as a side dish, there it is its own food group.
But even if they bought rice from
The US, I mean how much dollar value would that be and how much could we export and would they buy it?
To me I expect the tariffs to drop back to where they were or below once the prices of them actually take effect and our so called leaders fear of being replaced
Korean rice imports into Japan are literally a once-in-a-decade occurrence. Recently, temporarily given a green light to reverse Japanese domestic rice inflation.
It would be reasonable to think that Korean rice would be largely substitutive with Japanese rice….but nope.
Maybe someone who lives in Japan can give an appropriate analogy—-but I imagine it would be like an American buying “Made in 3rd World Bumble-f” chicken nuggets at Costco—even if it came from the most modern and compliant factory in the world.
US rice competing in Japan will be like US full-size SUVs competing in Japan….yes, there will be a niche market, but it likely will not expand beyond that niche due to specific, articulable quirks of the Japanese domestic market.
My friend says the imports are largely for “fast food” on the Shinkansen trains etc. People KNOW it is the “McDonalds” of food……..but if they’re hungry and haven’t packed a lunch then they’ll buy it.
But they are under no illusions as to its veracity.
There is no fast food on the Shinkansen.
You can get Japanese-type rice varieties in the US. It’s almost all grown in California, with its most common varieties known as “CalRose” or similar. Those are consumed domestically by Asian Americans. I usually get brands Kokuho Rose or Nishiki for every day eating.
California also grows Tamanishiki rice, but that’s really premium.
US rice has arsenic—an inevitable and natural byproduct of the rice plant’s uptake of elements in the soil. US long grain (Uncle Ben’s-type) rice has the most.
IIRC, supposedly Japanese soil and rice varieties make Japanese rice have much lower arsenic levels.
And Japan and other countries used to use the arsenic as a formal/informal trade barrier against American rice.
My cousin eats a lot of rice….and she said it showed up in her blood work—-nothing necessarily bad. But IIRC, there really isn’t any definitive research on arsenic consumption and health beyond extremely high consumption of arsenic.
but in the big picture, I imagine having a rice-vegetable heavy diet (even with the arsenic) is better than the median US diet.
Re: rice in Japan
There is an ongoing scandal concerning the increase in the price — more than double since this time last year — as it seems some government policies were used to discourage farmers from planting enough, leading to a domestic shortage, higher prices, etc.
Questions have been asked about whether there was price speculation involved.
The political right in Japan has also been attacking the most important player in domestic agriculture, Japan Agricultural Cooperatives (aka Nokyo).
At the beginning of this month, the UTokyo Professor of Economics Nobuhiro Suzuki made a bombshell statement that the U.S. company Cargill wants to buy Nokyo, but this is currently impossible since it’s a cooperative. To mitigate this, the Japan-U.S. Joint Committee has quietly ordered that Nokyo be privatized, and that’s why the agricultural cooperative has come under attack by neoliberals in the Parliament.
https://x.com/PoppinCoco/status/1917883815814709506
Imo trump is accelerating the building of a wall between an expensive low quality oligarch controlled west and an inexpensive high quality east where oligarchs have somewhat less control. West says, ‘with us or agin us?’ Whereas east seems more flexible. West seems to offer short term gain but long term pain. Us in particular looking to boost short term profits by sacking researchers… eating the seed corn. 2040 looking bad to me, 2050 disastrous. Worried about kids/grandkids.
Everything will change in 90 days, the end of the tariff lull and the X-Date for the debt level raise unsurprisingly are about the same time. Once Mr Trump gets his hands on another $ 4 trillion of credit we will be off to the races again. Business people like Mr Trump view unused credit as wasted resources, I expect him to run through the $ 4 trillion by the mid-terms.
It is like the rare earth restriction by China, all that is happening is the US companies are allowed to apply for a licence for these materials which I guess will take about 90 days.
The tweet from John Pang about AI sovereignty is interesting. I work for a company with an AI product in a role where I regularly see the currently deployed and utilized AI models and GPU types on customer infrastructure, and these customers include big multinational and enterprise companies everyone reading this would recognize. The US-based companies especially those considered ‘national champion’-like in certain industries have already pushed out internal guidelines against usage of Qwen and Deepseek. By and large these companies are also using cloud platform providers to provision their Nvidia GPUs. Internationally-based multinationals, also falling in the same ‘national champion’-like category, are publicly doing the same. Many are also creating private, bare metal/on prem airgapped data centers using the open source models, including yes the Chinese models. Most of those are also training and creating their models based on those same open source models (they start with an open source model and use a trainer + weights on their own data sets to change the model capabilities). Even the US companies are doing this and I’m not sure the use case is covered by the legal restrictions. How could it without completely upending IP law? Lots of unintended consequences ahead.