May 11, 2017 1:52 am JST

As US trade hawks' power fades, no letup on Japan

Tokyo now Washington's preferred target on trade deficit

ISAYA SHIMIZU, Nikkei senior staff writer

Then-U.S. National Trade Council head Peter Navarro, second from right, accompanied by from left, President Donald Trump, Commerce Secretary Wilbur Ross, and Vice President Mike Pence, speaks at a signing ceremony for executive orders regarding trade in the Oval Office on March 31. © AP

TOKYO -- Washington's stance toward traditional trade adversaries seems to be softening as more hawkish figures lose influence and security concerns intervene -- though talk on Tokyo is as critical as ever.

The protectionist faction's decline began in early April, when Steve Bannon, chief strategist to President Donald Trump, was removed from the principals' committee of the U.S. National Security Council. Bannon has billed himself as an economic nationalist, and has called America's withdrawal from the Trans-Pacific Partnership trade pact "one of the most pivotal moments in modern American history."

Peter Navarro, an academic and noted China hawk, took a hit later in the month when the White House National Trade Council he headed was replaced by the Office of Trade and Manufacturing Policy. While Navarro remains in charge of the new organization, he is no longer expected to take charge of trade negotiations.

At the same time, the Trump administration has softened its stance toward Beijing. The Treasury Department refrained from naming China a currency manipulator in a mid-April report, despite Trump's campaign-trail promise to do so. Countering the growing threat of North Korea's nuclear and missile development apparently took precedence: "Why would I call China a currency manipulator when they are working with us on the North Korean problem?" the president said on Twitter.

New target

There is little prospect of such softening toward Japan, however. The Commerce Department said last Thursday that the U.S. trade deficit with this country is "growing at an alarming rate," in light of a roughly 30% rise in the deficit in goods from February to March.

"The United States can no longer sustain this inflated trade deficit with our closest trading partners," Commerce Secretary Wilbur Ross said in reference to Japan and Mexico. "The Trump administration is committed to rebalancing our trade relationships in order to protect American workers and businesses from lopsided trade relationships."

Japanese government sources now worry this country could replace China as Washington's preferred target for criticism on trade -- not least because the statement specifically referenced improvement in the U.S.-China deficit, however slight. This despite trade with China accounting for roughly half of the total U.S. trade deficit, compared to around 10% for Japan.

Fresh ammunition

Before Trump took office in January, Japanese trade authorities were hopeful that his administration's hard-line trade policies would take aim at Beijing, not Tokyo. All recent evidence is to the contrary. The U.S. will have trouble taking a tougher stance on China until the North Korean threat recedes. But maintaining the appearance of efforts to reduce the deficit and increase employment is key to keeping Trump's base satisfied -- hence the tough talk on Japan.

The currency market could give Washington another line of attack. Investors have returned to selling yen, a safe-haven currency, after the far-right Marine Le Pen was defeated by a wide margin in France's presidential election Sunday. "The dollar's strengthening trend will carry on for the time being," according to Masafumi Yamamoto of Mizuho Securities.

This could prompt Washington to speak out against the weak Japanese currency and give investors cause to buy up yen. Ross told Reuters in an interview Tuesday, "I don't think it is so much that the dollar is too strong as that the other currencies are too weak."

Other events in the pipeline -- including possible Senate confirmation for Trump's trade representative nominee this week and a three-day meeting of Group of Seven finance ministers and central bankers starting Thursday -- also deserve attention for their potential effects on currency policy, said Tohru Sasaki of JPMorgan Chase Bank.

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