Why Trump And Ishiba Aren't 'Bromance' Material

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One reason Trump might not bother: Ishiba is about as popular with voters as former US leader Joe Biden. With national elections slated for July fast approaching, Ishiba's odds of keeping his job aren't great. Team Trump might see little point in investing in a government running on fumes.

Either way, there's virtually no scenario where Trump 2.0 goes well for Japan. On top of Trump's tariffs on steel and aluminum, Japan is bracing for Trump's response to Chinese leader Xi's retaliatory steps following the 10% tax Washington slapped on Beijing.

Odds are, too, that Trump's anti-China trade advisers are prodding him behind the scenes to hit Xi's economy doubly hard.

On Friday, the same day he met Ishiba, Trump declared he would soon unveil a series of reciprocal tariffs on any number of key trading partners. As such, economists at Morgan Stanley don't see Trump stopping at just 10% tariffs on Chinese goods.

“We still expect the US will levy more tariffs on China later this year as part of its larger trade policy goals,” they argue in a note. That, they note, could provoke a cycle of tit-for-tat trade curbs.

Analysts at Oxford Economics add that the“trade war is in the early stages so the likelihood of further tariffs is high.” As such, Oxford Economics is in the process of downgrading its China growth trajectory in 2025.

That spells big trouble for Japan, as Ishiba's main trading partner faces intensifying headwinds. At home, retail sales are struggling at a moment when the Bank of Japan is tightening credit - and determined to keep going.

“The global macro landscape has gotten more volatile since Donald Trump came back to office,” says Masahiko Loo, strategist at State Street Global Advisors.“The potential mix of policies pursued by the new administration is deemed to benefit the US dollar, putting further downward pressure on the yen. This allows the BOJ to consider lowering the policy rate differential with the US, increasing the likelihood of another rate hike.”

The BOJ's consumption activity index, adjusted for travel, fell 0.5% in December from November. It's a“surprisingly poor result,” Angrick says. Consumption of durable and non-durable goods, meanwhile, dropped 1% and 0.7%, respectively. Across 2024, consumption fell 0.7%.

“The disappointing run of data is difficult to square with the BOJ's claim that domestic consumption is increasing moderately,” Angrick notes.“Real wages have been falling for nearly three years, stretching household finances and weighing on consumption. Better wage growth should lift consumption later in 2025, but with inflation sticky, the recovery will be slow.”

This is even before Trump 2.0 hits Asia with the tariffs that top trade advisers like Peter Navarro have long advocated. Economists at UBS think the 60% tariffs Trump has threatened to levy on Chinese goods would cut China's roughly 5% economic growth rate in half.

As this risk hovers over Asia's 2025 like a sword of Damocles, economists say it's best to remain clear-eyed about how little Ishiba actually achieved in Washington last week. This includes the underwhelming“deal” he and Trump claimed to strike over US Steel.

Nippon Steel had been trying to acquire US Steel for about $14.9 billion. Former President Biden vetoed the deal, leaving Team Ishiba hoping Trump, Mr Art of the Deal, might say yes. To no avail. Instead, Trump said Nippon would“invest heavily” in US Steel without being granted a majority stake.

Many are reading it as a win-win for Trump and Ishiba.“Trump's surprise decision ... to support a Nippon Steel investment in US Steel represents a notable win for Ishiba,” says David Boling, analyst at Eurasia Group.

Boling notes that“while the details remain unclear, this announcement is a better-than-expected outcome for Ishiba, and it will likely boost his political standing at home in the short term.”

Trump, Boling adds, had met with US Steel representatives on February 6,“which perhaps paved the way for the new approach. Unlike his predecessor Kishida Fumio, Ishiba has been outspoken in favor of the deal, having even urged Biden to approve it near the end of his presidency.”

As such, Boling says,“Ishiba will be in a good position to claim credit for smoothing the way for a compromise, which may also help to assuage concerns by the Japanese business community that the US was turning against FDI.”

Others are perplexed. Jeffrey Park, head of alpha strategies at Bitwise Asset Management, speaks for many when he notes:“Nippon Steel tried to buy US Steel last year but now instead found themselves investing billions into the US, which Ishiba actually spinned it as a 'successful' meeting so then Trump sealed it with his signature kiss of a 25% tariff?”

Welcome to Ishiba's hell year of trying to project trust and friendship with a US leader looking elsewhere. Also, Team Ishiba settling for a shadow of the transaction Nippon wanted - and appearing to like it - sets it up to get rolled again and again by Team Trump.

What happens, for example, when Trump demands Tokyo engage in another bilateral trade deal? Surely, Trump knows the initial negotiation with Abe was a dud.

“Hailed by President Donald Trump as a major breakthrough, the US-Japan trade deal announced on September 25, 2019, actually does little more than partly restoring the benefits that Trump recklessly threw away when he pulled the United States out of the Trans-Pacific Partnership (TPP),” notes Jeffrey Schott, economist at the Peterson Institute for International Economics.