TOKYO -- Japan has crafted its diplomatic and economic strategy around the close relationship Prime Minister Shinzo Abe has forged with U.S. President Donald Trump, but it appears those bonds are becoming frayed by trade frictions.
"I'll talk to Prime Minister Abe of Japan and others -- great guy, friend of mine," Trump said Thursday at the White House. "There will be a little smile on their face. And the smile is, 'I can't believe we've been able to take advantage of the United States for so long,'" he continued. "Those days are over."
The president made that statement before signing a memorandum authorizing punitive tariffs against China, but he was referring to the blanket 25% import duty on steel and the 10% charge on aluminum that went into effect Friday. The administration exempted seven trading partners from those tariffs, but Japan was not one of them.
"Those measures are extremely regrettable," Japan's Chief Cabinet Secretary Yoshihide Suga told reporters on Friday. "We wish to continue working tirelessly for an exemption."
Japanese companies are being urged to seek exceptions from the U.S. for individual products. "There is a good chance an item will win an exemption," said Hiroshige Seko, Minister of Economy, Trade and Industry.
For the past year, Deputy Prime Minister Taro Aso has been meeting with his U.S. counterpart, Vice President Mike Pence, in a series of economic talks geared toward resolving trade issues. For Japan, that dialogue was a mechanism for putting off a conclusion, according to a source close to the Japanese government.
With that mindset in place, Japan was caught off guard. Officials even went as far as believing that the U.S. would not make demands that are distasteful to Abe.
Now things are different. "It brings to mind scenarios such as stronger pressure to open up the agricultural market, or demands for concessions concerning the automobile trade," said a senior Japanese economic official. Trump may even rehash the campaign to have Japan purchase American-made fighter aircraft.
If the yen depreciates, that could elicit renewed criticism from Trump over currency manipulation by Japan. Tokyo may face additional pressure to enter into bilateral free trade negotiations. And if economic ties sour between the two countries, that impact could spill over into the diplomatic sphere, such as the united front against North Korea.
Japan exports about 1.8 million tons of steel per year to the U.S., or about 2% of domestic production. High-grade materials that cannot be easily procured elsewhere make up much of the exports. Even under the tariffs, Japanese steelmakers will be able to remain competitive, said an analyst. But U.S. clients will be forced to pay higher costs.
Canada, Brazil, South Korea, Mexico, Australia, Argentina and the European Union are all subject to temporary reprieves from the tariffs. Each trading partner is in a position to make deals that would lower the U.S. trade deficit.
"Many countries are calling to negotiate better trade deals because they don't want to have to pay the steel and aluminum tariffs," Trump said Thursday, making it plain that the duties are serving as bargaining chips in trade negotiations.
Since last August, the U.S. has entered into talks with Canada and Mexico to modify the North American Free Trade Agreement. Washington launched active discussions with South Korea to renegotiate a free trade agreement in January, while the EU is also calling for renewed free trade talks.
Canada, Mexico, South Korea and the EU enjoy trade surpluses with the U.S. -- something Trump has denounced time and again. Meanwhile, America has posted trade surpluses with Brazil, Argentina and Australia.
The seven trading partners account for over 60% of U.S. steel imports. In order to meet its goals in curbing imports, the Trump administration is leaning toward establishing import limits. The White House even indicated the chance of higher tariffs.