KWR Special Report

U.S.-Japan Relations at a Turning Point?
By Dr. Scott MacDonald

New York (KWR) November 14, 2016 - One of the bedrock alliances that has underpinned East Asian security throughout much of the post-World War II era has been between the United States and Japan. That alliance was based on common national interests. This included dealing with the Soviet Union during the Cold War, the Korean War and North Korea, and the rise of China. There have been differences, usually over economic matters, especially in the 1980s and early 1990s, but strategic concerns maintained the glue in the relationship.

With the victory of Donald Trump to the U.S. presidency and his open questioning of old diplomatic arrangements, questions are being raised as to what is next? Will national interests, more narrowly hinged on trade issues, lead to a chill in relations? If so, this would have enormous consequences for the structure of international relations in East Asia and beyond.

The U.S.-Japan relationship is constructed around extensive trade relations, investment in each other's economy, and concerns over the rise of China. Japan is the fourth largest trade partner for the United States, with exports and imports amounting to a little over $200 billion. This is only behind Canada, China and Mexico in terms of importance. On top of that Japanese companies have set up factories in the U.S., producing a wide range of products, including automobiles. Japan is also the second largest holder of U.S. Treasury bonds at a little over $1 trillion, just behind China.

But the U.S. electoral results have suddenly put the nature of U.S.-Japan relations into question. One of the main points of the Trump campaign was that it was time to redo U.S. agreements to benefit the United States and its workers. Considering that Japan usually runs a trade surplus with the United States, totaling around $70 billion in 2014, candidate Trump threw Japan into the mix of countries that he would make better deals with for the American worker.

Another point candidate Trump advanced was that old alliances need to be rethought, especially where other countries were not pulling their weight on defense matters. Although this probably was not directed at Japan, it certainly raised some concerns in Tokyo as did Trump's comments that perhaps Japan should pursue nuclear weapons. This is an unsettling idea among much of the Japanese public.

Considering these developments, is the U.S.-Japan relationship about to undergo a major change? The answer is probably not, at least in the short term. Considering U.S. strategic concerns vis-à-vis China, it would be difficult to see a Trump administration moving away from a strategic doctrine that has been in place for decades and is based on compatible weapons systems, strategy and coordination. This is reinforced by the increasingly troubled nature of U.S.-Philippine relations, which has undermined the outgoing Obama administration's Asian pivot and enhanced Japan's strategic value.

One of the key elements in foreign policy is commonality of national objectives. In U.S.-Japan relations, a Trump push for Japan to assume a greater burden of military preparedness dovetails with the Abe administration's plans to expand Japan's defense budget. Both countries also have a stake in containing the threat from North Korea, which has a nuclear weapons and ballistic missile program that threatens their respective national security. Considering that one of Trump's foreign policy advisers and possible member of his government is John Bolton, a hawk on North Korea, it is questionable that soon to be President Trump will forget the threat from the Stalinist dynasty in Pyongyang.

An unexpected development for both Japan and the United States would be a rapprochement between Washington and Moscow. Certainly one development in Trumpian foreign policy would be to mend relations with Russia, de facto signaling a shift away from backing Ukraine and removing Crimea as a sticking point in relations in return for improved coordination in destroying the Islamic State in Syria.

At the same time, Prime Minister Abe has sought to warm relations with Russia in the hope that some concessions could be made in regard to the Kurile Islands taken from Japan at the end of World War II. This has prevented a formal treaty ending World War II hostilities between the two countries. Japan is also looking to develop greater trade with Russia, especially in the area of energy. A closer Russo-Japanese relationship probably would not incur Washington's disapproval, especially if the U.S. is moving in the same direction.

This leaves trade as the main point of friction between the United States and Japan. Trump's election has effectively killed off the Trans-Pacific Partnership (TPP), which Japan favored. During the campaign, Trump called the pending trade agreement "a continuing rape of our country." The TPP would have included the U.S. and 11 countries in Asia, South America and the South Pacific and was partially designed to counter China's increasing economic might and its trade plans in the Silk Road project.

While the death of the TPP is not a positive development on the trade front for Japan, the Trump administration could also opt to push tighter enforcement of standing trade provisions on Japanese products. At the very least, the new government could red flag different areas of trade for investigation, signaling that there could be problems, possibly involving tariffs, unless matters are discussed and modified. Along these lines, the Trump administration could appoint an enforcement czar, who would let Japan and other countries with large trade surpluses with the U.S. know that there is a new sheriff in town who is willing and ready to play hardball.

The change in the White House should serve as a wakeup call for Japan. A Trump administration is going to be more transactional, driven more by what is good for the United States. In this, a large Japanese trade surplus is a red flag. At the same time, the mutual need for dealing with China and North Korea as security concerns keeps a high degree of continuity in the relationship.

Consequently, the U.S.-Japan relationship is likely to change, becoming more nuanced than before, with potential tensions surfacing over trade matters. Yet, Japan and the U.S. still need each other in the strategic sense. As was said in a 2009 comedy starring Meryl Streep and Alec Baldwin, "it's complicated."

While the information and opinions contained within have been compiled from sources believed to be reliable, KWR does not represent that it is accurate or complete and it should be relied on as such. Accordingly, nothing in this article shall be construed as offering a guarantee of the accuracy or completeness of the information contained herein, or as an offer or solicitation with respect to the purchase or sale of any security. All opinions and estimates are subject to change without notice. KWR staff, consultants and contributors to the KWR International Advisor may at any time have a long or short position in any security or option mentioned.

KWR International Advisor

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Publisher: Keith W. Rabin, President

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