Japan’s Ishiba departs G-7 with US trade deal and political future in doubt

KANANASKIS, Canada – Japanese Prime Minister Shigeru Ishiba’s bid to get US President Donald Trump to relax tariffs imperilling his country’s economy and his political future fell flat this week, underlining the gulf between the allies as more levies are set to kick in.

Mr Ishiba travelled to the G-7 summit in Canada hoping a direct appeal might get talks back on track after Japanese negotiators struggled to secure respite on a 25 per cent tariff imposed on imported cars, according to two officials with knowledge of the matter.

While the sun beamed down as Mr Ishiba and Mr Trump reclined in lounge chairs in the foothills of the Canadian Rockies, June 16’s brief encounter did little to alter the grim forecast for Japanese industry girding for broader 24 per cent levies due on July 9.

The lack of progress could knock confidence in Mr Ishiba’s diplomacy just as he prepares to contest a dicey upper house election in July that some political analysts said could result in his ouster.

“Despite our persistent efforts to find common ground through serious discussions, yesterday’s meeting with President Trump confirmed that we still have discrepancies in our understanding,” Mr Ishiba told reporters on June 17 before his departure from Canada.

Mr Trump earlier told reporters aboard Air Force One that “there was a chance of a deal” but appeared in little mood to cede ground.

“Ultimately you have to understand we’re just going to send a letter saying this is what you’re going to pay otherwise you don’t have to do business with us,” he added.

Car trouble

The most pressing issue for Japan has been the impact of Mr Trump’s tariffs on its auto sector, which employs nearly one in 10 of the country’s workers and accounts for a fifth of exports.

Japan’s overall exports fell in May for the first time in eight months, piling pressure on its fragile economy, the world’s fourth largest.

Toyota, Japan’s leading car company, has already flagged that tariffs have likely sliced off 180 billion yen (S$1.6 billion) from its profit in April and May alone.

Honda has said it expects a 650 billion yen hit to its earnings in 2025 from tariffs in the US and elsewhere. Mazda Motor declined to issue a full-year profit forecast, citing uncertainty due to tariffs.

Publicly, Mr Ishiba’s government has said it aims to win total exemption from Mr Trump’s auto tariffs. Behind the scenes, its negotiators had been trying to convince Washington to knock them down to around 10 per cent, the sources said, requesting anonymity due to the sensitivity of the matter.

Mr Trump’s trade deal with Britain, where he agreed to allow a quota of cars to be subject to a lower 10 per cent levy, has provided somewhat of a template, although Japan is a far larger exporter of cars to the US.

In exchange for relief on the auto sector, Tokyo pledged to step up purchases of US gas and other items to rebalance a trade deficit that has long irked Mr Trump.

But just days before Mr Ishiba was due to arrive in Kananaskis, Canada for the G-7 summit, it became clear to Japan’s negotiators that Washington was unwilling to budge, said one of the sources.

Diplomatic skill

Mr Ishiba likely miscalculated by raising expectation of an agreement with Mr Trump, said Mr Kenji Minemura, a senior researcher at the Canon Institute for Global Studies.

He will now have to put a trade deal aside and focus on convincing Mr Trump to extend the pause on the broader reciprocal levies, a senior lawmaker close to the Prime Minister said.

Otherwise, Mr Ishiba faces the prospect of contesting elections in July with the full force of Mr Trump’s tariffs in effect. The combined tariffs could shave nearly 1 per cent off Japan’s gross domestic product, Mizuho Research and Technologies estimated.

Said Professor Hiroshi Shiratori, who does contemporary political analysis at Hosei University: “The fact that nothing was agreed at the summit could raise doubts about the diplomatic skills of the Ishiba administration.” 

His ruling coalition may struggle to hold on to its majority in the upper house vote, a repeat of the result in the more powerful lower house election in October, which could potentially trigger his ouster, political analysts noted.

Even if the Liberal Democratic Party limps on in minority rule, there is around a 70 per cent chance it would replace its leader, said Professor Michael Cucek who covers political science at Temple University in Tokyo.

“If they do have a significant loss, then Ishiba has to go. You can’t lose two elections in a row,” he added.

Mr Ishiba may get another chance to make progress with Mr Trump later in June with the two due to attend a two-day Nato summit in The Hague from June 24. REUTERS

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