An Urban's Rural View

The country posing the greatest strategic threat to the United States is China. The Asian country most able to help the U.S. meet that threat is Japan. You might think, then, that the Trump administration would give Japan a break in the tariffs it's imposing on countries everywhere.

Think again. The president has imposed a 25% tariff on everything Japan ships the U.S. That's well above the administration's 10% baseline tariff, which is about three times the average U.S. tariff level under previous administrations.

Never mind that the two countries signed a trade agreement during the first Trump administration that lowered numerous Japanese barriers to U.S. agricultural products. (https://ustr.gov/…)

Never mind that Japan has agreed to allow its factories to produce Patriot missiles for the U.S. Or that Japan is cooperating with the U.S., the United Kingdom and Australia on the one hand and South Korea on the other to help the U.S. meet the China challenge.

Japanese negotiators have made numerous trips to Washington in hopes of making a deal. They've returned to Tokyo empty-handed.

It's still possible a deal could be reached before the Aug. 1 deadline. But the prospects aren't promising.

According to respected Japan expert Jesper Koll, the Japanese are bewildered at the way their country is being treated. This, he said, is undermining the ruling Liberal Democratic Party's reason for being -- "to be America's independent but loyal agent in liberated-by-America-now-democratic Japan." (https://japanoptimist.substack.com/…)

The LDP appears to have suffered a big loss in the upper-house election held July 20 and while domestic inflation and immigration were probably the most important issues in the defeat, the government's inability to head off American tariffs undoubtedly played a role.

I recently asked someone with first-hand knowledge of Trump's thinking on trade to handicap the chances of Japan reaching a deal. He said that unlike the outlook for some of the other countries trying to negotiate deals, Japan's fate rests with Trump personally -- and no one knows for sure what the president will decide.

But there are two reasons for pessimism. One is that Trump is fixated on imported cars, and more than anything Japan wants a lower tariff on its auto exports. Of the 3,000 things Trump thinks about when he contemplates trade, the source said, "3,000 and one are automobiles."

(The administration has actually imposed a 25% tariff on all foreign autos, not just Japan's, and has made an exception only for the UK, which only ships about 100,000 cars a year to the U.S. Against Japan the tariff is 25% on everything.)

The other reason for pessimism is that Trump's view of Japan seems stuck in the 1980s and early 1990s, when economic friction between the two countries was a constant. In 1987, Trump took out full-page ads in major newspapers blasting Japan for taking advantage of the U.S. (https://www.washingtonpost.com/…)

Part of what Trump remembers is real-estate related. After the 1985 Plaza Accord, which nearly doubled the value of the Japanese yen against the U.S. dollar, American real estate suddenly looked cheap to Japanese investors. They outbid Trump on some choice deals in New York City. He has a long memory.

Another part of what Trump remembers may reflect his friendship with Lee Iacocca, who was CEO of Chrysler from 1979 to 1992 and a national celebrity. Iacocca, like many in Detroit in those days, was intensely anti-Japanese. Iacocca and Trump invested in Florida real estate together. (https://www.nytimes.com/…)

I was Detroit bureau chief of The Wall Street Journal in 1984 and 1985 and at one point I traveled with Iacocca for a couple of days. I admired his charisma, but I thought he was wrong about Japan.

The Journal had sent me to Detroit after I'd spent nearly four years in Tokyo because, as the paper's top editor put it when he gave me the assignment, "Japan is kicking Detroit's ass and we need someone leading our worldwide auto coverage who understands Japan."

Iacocca and his fellow Detroit Japan-bashers thought they were losing market share to Japan because the Japanese were cheating -- low wages, undervalued currency, that sort of thing. The truth was simpler.

Japan was making better cars than Detroit and American car buyers increasingly knew it. Yes, the yen was undervalued in the early 1980s, but after Plaza it was overvalued and Japanese car sales continued to grow.

Trump seems obsessed with the failure of American cars to find customers in Japan. There was a time when Japan erected barriers to imports. Today, though, the Germans sell tens of thousands of cars there.

Detroit makes little effort in Japan, probably because its big money-makers -- large SUVs and pickup trucks -- aren't what most Japanese car buyers are looking for.

If the LDP can't get the U.S. to ease up on the 25% tariffs it could well lose control of the government. The party replacing it would be less likely to partner enthusiastically with the U.S. in meeting the China challenge. Whether that possibility might influence Trump's decision remains to be seen.

Urban Lehner can be reached at urbanize@gmail.com

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