Trump's trade war with China puts Japan in a tight spot

Tokyo: As Washington and Beijing wage an intensifying trade war, Japan is caught in the middle of the fight.

Japan sells a large amount of cars to the United States, and computer chips and chipmaking equipment to China. For the past two decades, the United States and China have alternated as the top destination for Japanese exports. No other country comes close.

Now, as President Donald Trump attempts to rally U.S. trade partners against China, and Beijing threatens countries that would heed that call, Japan faces a dilemma. Spurning either side would risk deeply unsettling its economy.

Japan was chosen by the Trump administration for its first face-to-face tariff talks, held last week. Trump is maintaining the threat of "reciprocal tariffs" that he imposed on dozens of countries and then paused until early July. In Japan's case, that tariff is 24%, which government officials have said would cause a crisis for the country's economy.

This is not an entirely unfamiliar spot for Japan, which has been caught between the two economic giants as trade tensions between them have simmered over the past decade. Japan has walked a delicate path -- taking steps to hedge its dependence on China while distancing itself from the politics of Washington.

Trade experts suggested that attempts to push Japan to rapidly or forcefully curtail its economic links with China would face significant resistance in Tokyo.

Japan can offer the Trump administration a number of conciliatory measures, like buying more American rice and allowing cars that pass American standards to drive on Japanese roads, said Masahiko Hosokawa, a professor at Meisei University and former senior official at Japan's trade ministry.

"Decoupling with China," he said, "is not a possibility."

In Japan, like in America, consumers buy large amounts of Chinese goods and businesses rely heavily on Chinese supply chains, Hosokawa said. That means that Japan can offer the United States little, if anything, in the near term that would serve to isolate China, he said.

Recently, Trump administration officials, including Treasury Secretary Scott Bessent, have signaled that they aim to reach agreements with trading partners that align with U.S. policies designed to counter China and its so-called economic coercion. Bessent leads U.S. tariff negotiations with Japan.

Officials in China have taken notice of the Trump administration's maneuvering. On Monday, the Chinese government warned other countries against curbing trade with China to win a reprieve from U.S. tariffs, promising to retaliate against countries that did so.

"Seeking so-called exemptions by harming the interests of others for one's own selfish and shortsighted gains is like negotiating with a tiger for its skin," the Chinese Ministry of Commerce said. "In the end, it will only lead to a lose-lose situation."

Whether Japan can maintain trade relations with the United States and China as they raise tariffs on each other to well over 100% carries significant implications for its economy, the world's fourth-largest.

Japanese firms face increasing urgency to expand overseas, driven by the nation's shrinking population. That makes finding alternatives to China difficult. On the other hand, economists warn that the 24% tariff threatened by the United States would have devastating consequences for Japan's economic growth and domestic industries.

Japan began hedging its dependence on China in 2010, after Beijing imposed an embargo on exports of crucial rare earth metals to Japan to seek concessions in a territorial dispute. In response, Japan made diversifying its supply chains for materials and other critical goods a central tenet of its policy objectives.

In 2020, Japan's government offered up billions of dollars of subsidies to prod Japanese manufacturers to move production from China to Southeast Asia or to Japan. Japanese policymakers insisted that their efforts were not aimed at any particular country.

During the Biden administration, Japanese companies invested significantly in the United States as part of Washington's "friendshoring" initiative, which aimed to reorient supply chains to so-called friendly countries.

But even as the United States imposed steep tariffs on Chinese products like electric vehicles, Japanese officials took a different approach, offering Chinese automakers the same subsidies available to all other producers of battery-powered cars.

Tsuyoshi Kawase, a professor of international economic law at Sophia University in Tokyo and a former economy ministry official, said Japan has attempted to take a long-term approach to China to avoid conflict. Japan's economy is deeply integrated with both the United States and China, and "we do not have the option of putting everything in a single basket," Kawase said.

Last month, top diplomats from China, Japan and South Korea met in Tokyo and pledged to promote cooperation among their countries. A social media account affiliated with Chinese state media said the countries had agreed to jointly respond to U.S. tariffs. South Korea said the message was exaggerated. Tokyo said no such discussion had taken place.