Trump 2.0 and Japanese companies: attack, acclimation and adaptation

Japanese companies have huge stakes in the policies implemented by Donald Trump’s new administration. The United States is Japan’s second-largest trading partner, the largest destination for Japanese foreign direct investment (FDI), and a major research and development (R&D) center for Japanese companies. Japanese companies are also closely linked to the US, through their dealings with and foreign direct investments in countries such as China and Mexico, which, albeit for different reasons, have come under intense scrutiny by Trump and his entourage.

But strangely, while there is a flood of analysis on Trump 2.0 and China, Trump 2.0 and Southeast Asia and the like, there is an almost complete absence of systematic pieces on Trump 2.0 and Japan, particularly on the implications of the new regime . for Japanese companies.

It is well known that Trump remains enamored with trade tariffs. For him, they are a tool to redress trade imbalances; to encourage greater foreign direct investment in the U.S. and, relatedly, boost U.S. manufacturing; and to negotiate changes in the military and political spheres. The problem isn’t just that he plans to raise rates worldwide will specifically focus on China, Mexico and Vietnam, countries where Japanese companies have invested heavily. Moreover, under Trump, Washington will likely pressure Japan and Japanese companies to buy more American products and services.

Another challenge for Japanese companies will be that Trump, his Cabinet at large, and many key advisors are China hawks. They will want Japanese companies to reduce or eliminate foreign direct investment in Chinaalign with expanding US export controls, limit technology transfers, and show solidarity with the US in the face of Chinese retaliation against US tariffs.

In the new Trump era, Japanese companies in the US will face an evolving environment, with the negative side being the elimination of supporting subsidies and tax credits (e.g. for electric vehicles) and higher tariffs on parts imports into the US , and on the plus side: potentially reduced regulation and corporate taxes, wider FDI doors and new opportunities for cooperation in crucial minerals, energy and technology. Apart from this, it is likely that the The new administration will oppose Japan’s regulation of American high-tech companies such as Amazon, Apple and Google. This in turn could cloud the business environment for Japanese companies that compete with or are under pressure from such companies.

The Trump administration could also pressure Tokyo to open its services or other sectors more broadly to U.S. companies and to be more open to U.S. activist investors seeking to “reform” Japanese companies, both of which have implications for corporate governance. business operations, and the competitive environment in Japan.

There is no one in Trump’s top team with experience in Japan. This said, there are people who have expressed positive opinions about Japan or who have more extensive ties than other members of Trump’s inner circle. Mike Waltz, Marco Rubio and Scott Bessent, Trump’s picks for national security adviser, secretary of state and treasury secretary respectively, fall into this camp. There are also those who have policy preferences that directly or indirectly align with the preferences of Japanese companies. For example, Chris Wright, Trump’s chosen Secretary of Energy, wants more liquefied natural gas (LNG) and greater production of geothermal energy and nuclear energy. Regardless of the above, Trump and his team undoubtedly view Japan as an invaluable security partner, even if they would like Japan to do more, which could make them reluctant to take strong trade actions against Japan.

Japanese companies are quickly gaining favor with the new government. For example, some have made “donations” to Trump’s presidential inauguration on January 20, as Toyota did. SoftBank Group CEO Masayoshi Son exceeded this by an order of magnitudeHe pledged to make a $100 billion investment in the US over four years, mainly in high-tech areas, that would create 100,000 jobs, doubling his investment promise to the new president eight years ago. Regardless of whether the investment will pay off, this is a good time to make progressive statements about investing in the US, especially about greenfield investments in areas like critical minerals, fossil fuels, electric batteries, nuclear energy and manufacturing favored by Trump and /or his team.

Acquisitions may be more sensitive, as the US Steel case shows, but overall, US national security investigations are likely to continue to view Japanese acquirers favorably, albeit with a sharper emphasis on Japan’s business relations with China. Increased investment in research and development also deserves serious consideration, given the many benefits it brings to Japanese companies. It speaks for itself Japanese companies need to broaden and deepen their government and public relations. Importantly, such efforts should not focus solely on Trump, as important as he is, but on his inner circle, multiple branches of government, and multiple levels of government, especially Republican-controlled states.

Finally, Japan’s business community must redouble its efforts to de-risk its supply chains and make them more resilient in the event of a full-blown trade war between China and the US. The United States recently took action against imports from Chinese factories in Mexico, opening a whole new area of ​​trade restrictions based on who manufactures a product rather than where it is made. Japanese companies must therefore continue to shift export production in China to safer bases in Southeast Asia or Mexico And take a closer look at the manufacturing, licensing or joint ventures they have with US partners that could be vulnerable to Chinese retaliation. They should pressure their government to build trade and investment relationships with other countries as they strive to stay ahead of the expansion of U.S. tariff barriers to other countries like Vietnam, where China is rapidly setting up factories to counter Trump tariffs to circumvent.

Although it had consequences, Trump 1.0 was not as earth-shattering for Japanese companies as many feared. However, it would be a mistake to assume that Trump 2.0 will be the same. First of all, Trump is not the same as before, as he has already served one term as president, and neither are those around him. Second, the domestic political climate in the United States has changed, with the Republican Party controlling both the US House of Representatives and the Senate and the judiciary and bureaucracy seemingly pliant, indicating that Trump will have a freer hand to exercise his economic agenda to pursue. Third, Japan is more politically unstable: Prime Minister Abe Shinzo had already been Japan’s leader for four years when Trump was elected in 2016, while Prime Minister Ishiba Shigeru is Japan’s third prime minister in four years. Fourth, regional and international conditions are not the same, with the US aggressive stance toward China more intense and international economic and other institutions weakened. Finally, Japanese companies have a much larger footprint abroad, meaning they are more exposed.

Japanese companies and their leaders would be wise to avoid mere adjustments and emphasize rapid adaptation to the new environment.