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Trump Says Trade With Japan Is Not Fair And Not Open - Awkward Moments Ensue

The first stage of Donald Trump’s five-nation tour of Asia began well with the President playing golf with Prime Minister, Shinzo Abe, describing their relationship as “really extraordinary”.

This suggested progress following the awkward moment during their previous meeting in February 2017. Abe was the first foreign leader Trump met after his election victory and Trump was mocked on social media after refusing to give Abe his hand back during their 19-second handshake. Today their budding relationship was tested as Trump lashed out at Japan’s unfair trade practices and his related attempts at humour. In rhetoric that sounded familiar to his campaign speeches Trump complained that Japan has been “winning” on trade, alluding to the $69 billion trade deficit in 2016.

“We want fair and open trade. But right now, our trade with Japan is not fair and it’s not open. The US has suffered massive trade deficits with Japan for many, many years.

One way that Trump is aiming to fix the trade deficit by making it easier for Japanese companies to do business in the US. However, his decision to highlight the auto industry was perhaps unfortunate. Nonetheless, Trump lamented.

“Many millions of cars are sold by Japan into the United States, whereas virtually no cars go from the US into Japan…Try building your cars in the United States instead of shipping them over. That’s not too much to ask. Is that rude to ask?

Last year Japanese automakers manufactured approximately 4.2 million cars and 4.5 million engines in the US, so the criticism was somewhat unjustified. Besides Japanese companies making more products in the US, Trump is keen to gain better access for US companies in Japanese markets. He stated.

“As president, I‘m committed to achieving fair, free, and reciprocal trading relationship. We seek equal and reliable access for American exports to Japan’s markets in order to eliminate our chronic trade imbalances and deficits with Japan.

On that note, Trump had some words of advice for the Japanese leader for reducing the deficit by buying US missiles to combat North Korea. As Reuters notes.

Trump also pressed Japan to lower its trade deficit with the United States and buy more U.S. military hardware.

 

“He (Abe) will shoot them out of the sky when he completes the purchase of lots of additional military equipment from the United States,“ Trump said, referring to the North Korean missiles.

 

”The prime minister is going to be purchasing massive amounts of military equipment, as he should. And we make the best military equipment by far.”

Abe’s calmly responded that Japan would shoot down missiles “if necessary”. Having described Japan as a “majestic country” and praising its ancient culture and customs as “terrific”, there was another awkward moment as Trump compared Japan’s economy to the US. According to the FT.

At a press conference with Japanese prime minister Shinzo Abe, Mr Trump joked that the US economy was more powerful than Japan’s, in an awkward moment during an otherwise positive visit where the two leaders focused on North Korea.

 

“The Japanese people are thriving. Your cities are vibrant and you've built one of the world's most powerful economies,” Mr Trump said. “I don't know if it’s as good as ours, I think not. OK? And we’re going to try and keep it that way, but you'll be second.”

We have a strong sense that Trump’s efforts at persuasion will have little impact on the US trade deficit with Japan. Indeed, we suspect that Abe is following the traditional Japanese approach of listening carefully, responding politely and carrying on regardless. That has been the tactic so far with the Japanese also highlighting that the current deficit is a significantly lower proportion of the total US trade deficit than it was in the past. Furthermore, as the FT explains, Japan was irritated when the Trump Administration withdrew from the Trans-Pacific Partnership.

While Mr Trump and Mr Abe are aligned on how to tackle the threat from North Korea, the trade relationship remains a thorny issue. The US is trying to push Japan to enter into bilateral trade talks. Japan was disappointed when Mr Trump in January withdrew the US from the 12-nation Trans-Pacific Partnership trade deal that was the economic pillar of Barack Obama’s Asia “pivot”.

Efforts as recently as last month to improve US/Japan trade relations foundered, as Reuters explains. Note the use of the term “Indo-Pacific”.

In a second round of economic talks in Washington last month, U.S. Vice President Mike Pence and Japanese Finance Minister Taro Aso, who doubles as deputy premier, failed to bridge differences on trade issues. The two sides are at odds over how to frame future trade talks, with Tokyo pushing back against U.S. calls to discuss a bilateral free trade agreement. Trump also said earlier that an Indo-Pacific trade framework would produce more in trade that the Trans-Pacific Partnership pact pushed by his predecessor but which he announced Washington would abandon soon after he took office. The 11 remaining nations in the TPP, to which Japan’s Abe is firmly committed, are edging closer to sealing a comprehensive free trade pact without the United States.

During the press conference with Abe, Trump described his Asian trip as his “first visit to the Indo-Pacific” region. This seems to be part of the Trump Administration embryonic Asian strategy. The term was first used by Secretary of State, Rex Tillerson, last month in a speech that praised India while criticising China for undermining the international order. The former Asia adviser to George W Bush, Dennis Wilder, told the FT that the Trump Administration is seeking a response to China’s “Belt and Road”.

Dennis Wilder, former, said Mr Trump was trying to find a way to respond to Chinese efforts to build economic and security ties across Asia. “The concept of a free and open Indo-Pacific region is a maritime centric concept that goes back to the great naval thinker [Admiral] Mahan,” said Mr Wilder.

 

“In some ways, the Trump team is trying to answer Xi Jinping’s big idea of the Belt and Road Initiative with their own big idea. The challenge is to put some substance to this concept."

Besides a lack of progress on trade with Japan, our sense is that aligning more closely with India is unlikely to counter China’s carefully constructed Eurasian strategy, to any meaningful extent. That is, absent a catastrophic bursting of China’s credit bubble which could set the Middle Kingdom back several years.

Meanwhile, there are plenty more stops on Trump’s Asian – especially China – for more gaffes, golf (?) and awkward moments as this FT diagram shows.