US-Japan Relations for a New Japanese Government and for a New Era

Trump 2.0: Rebalancing, reindustrialization, and personal diplomacy

The second Trump administration has demonstrated a clear desire to rebalance global obligations and responsibilities, marking a significant shift from the post-war consensus where the United States carried the lion’s share of military, financial, and economic security burdens. This rebalancing reflects the reality that allies are no longer recovering from war but are influential powers in their own right. The approach manifests prominently in security demands, such as NATO’s increased defense spending targets of 3.5% for military spending plus 1.5% for capability development leading to a combined spending of 5.0%, particularly in response to the Russia-Ukraine war. On the economic front, former Council of Economic Advisers Chairman Stephen Miran’s framework articulates that America’s provision of military security and financial security through the dollar’s role as reserve currency warrants reciprocal contributions from allies through tariffs, trade negotiations for market access, and purchases supporting American industrial production.

The administration’s core priorities center on the reindustrialization of America, technological leadership, and President Trump’s historical legacy. While tariffs dominate public discourse, they represent merely one component of an interconnected “iron triangle” encompassing tariffs, economic security, and industrial investment. The ultimate objective is increasing American industrial capacity while remaking the global order to favor American production and address unfair competition. President Trump’s firsthand experience during the COVID-19 pandemic, when supply chain disruptions imperiled political objectives, fundamentally shaped this push. His historical ambitions include remaking global trade through bilateral deals, rebuilding both cutting-edge technological leadership and traditional material industries like steel and automobiles, and establishing his role as peacemaker through the Israel-Gaza ceasefire, Russia-Ukraine negotiations, and potential peace efforts on the Korean Peninsula.

Personal diplomacy remains central to Trump’s approach. The strike on Iran particularly illustrates this. After giving Iran 60 days to negotiate, their refusal to participate seriously insulted his peacemaking efforts, leading to American support when Israel struck on day 61. However, the administration faces challenges from limited resources spread across ambitious goals. Shipbuilding exemplifies this: despite being a priority, the office lacks personnel and leadership. The administration demands constant engagement from partners, as demonstrated by the trade negotiations initially announced in July 2022 which required another six weeks to finalize terms including the 50% Section 232 automobile tariffs. Yet it remains receptive to input, as shown through the automotive tariff offset program extension to 2030 in response to industry concerns, and the Potential Tariff Adjustments for Aligned Partners (PTAAP) program which allows for lower tariff rates on items America cannot produce domestically.

Prime Minister Takaichi and the importance of domestic stability

Prime Minister Takaichi’s priorities address Japan’s domestic challenges while strengthening the U.S.-Japan alliance. Revitalizing the Japanese economy centers on so-called “kitchen table economics,” such as cost of living issues that contributed to the LDP’s July upper house election losses. Without addressing these concerns, the coalition cannot secure the mandate for larger policy goals. Her approach integrates security and economics, drawing on her experience as Minister of Economic Security to drive growth through increased corporate research and development in market-breaking industries. This requires corporate confidence to expand capacity, addressing the challenge that Japanese companies have reduced excess capacity to approximately 2% in certain industries. Recent positive developments include Japan’s sale of Mogami-class frigates to Australia and potentially New Zealand, alongside the June LDP shipbuilding white paper proposing government investment in shipyards operated by private companies.

Establishing a strong relationship with President Trump is clearly demonstrated through Prime Minister Takaichi’s selection of ministers Akazawa and Motegi, both possessing direct experience with the Trump administration. Creating stable leadership despite the narrow diet majority represents a fundamental challenge with direct implications for U.S.-Japan relations. Trump’s February meeting with then-Prime Minister Ishiba revealed his understanding that without domestic political strength, negotiated deals cannot be delivered. The same logic applies to Prime Minister Takaichi, as maintaining a strong domestic position enables her to negotiate and implement win-win solutions, thereby strengthening the overall alliance.

Opportunities for bilateral cooperation: Supply chains, investment, and standards

Supply chain security demands immediate attention following recent disruptions in rare earths and the Nexperia cutoff of legacy semiconductors, which highlight critical vulnerabilities requiring coordinated responses. Enhanced information sharing and intelligence collection through direct government-to-government and business-to-business contacts, or through organizations managing think tank relationships between the United States and Japan, represent effective approaches for addressing these challenges. However, implementing these mechanisms requires increasing information security levels so that standards in both countries match, enabling fuller sharing of sensitive commercial and strategic information.

The 550 billion USD strategic investment fund represents a major cooperation pillar across multiple key sectors including critical minerals, shipbuilding, energy, artificial intelligence (AI), and semiconductors. While significant work remains to be done at the government-to-government level to establish frameworks and processes, Japanese government and especially Japanese industry should proactively recommend specific projects rather than waiting for direction. Japanese industries possess a deep understanding of the U.S. market accumulated over the past 30 to 50 years of operations, giving them superior insight into what areas need investment and where opportunities exist. Taking initiative to recommend win-win investments is preferable to remaining passive and potentially receiving criticism from the Trump administration. The delay in hearing about concrete projects for the 550 billion USD fund reflects the political uncertainty Japan experienced over the past three months, while the United States remains eager to partner with a stable government that can deliver on commitments.

Additional cooperation areas include aligning investment screening mechanisms through the new revision of the Foreign Exchange Foreign Trade Act (FEFTA) and CFIUS reforms, creating positive pathways for coordinating inbound and potentially outbound investments. Improved utilization of private capital offers significant potential especially involving American private equity firms which are eager to invest in economic security initiatives, but which require clearer guidance from both governments, as well as leveraging the evolving role of Japanese trading firms. The recent interview with Mitsui Chairman Yasunaga describing their shift toward functioning more like a venture capital firm or hedge institution illustrates this transformation. Developing greater agreement on standards, particularly connectivity standards for connected vehicles and electric vehicles, will form the basis of future cooperation for ensuring that markets remain protected from unfair competition. Japan’s recent work on JC-STAR combined with the ICTS program ruling from January provides a strong foundation for building common approaches in this critical area.

Multilateral engagement and strategic vision

The 2026 calendar presents unique opportunities for advancing shared U.S.-Japan interests, with China chairing APEC while the United States chairs the G20, creating opportunities for competing economic visions and extensive public relations and public diplomacy competition globally. Japan and the United States must push forward a positive vision that effectively showcases negative aspects of PRC economic distortion, including the Belt and Road Initiative’s problematic lending practices, China’s hollowing out of other countries’ automotive markets through overcapacity and unfair subsidies, and broader patterns of overproduction disrupting global markets, while simultaneously articulating better, fairer standards that the international community should strive toward, presenting not merely criticism but constructive alternatives demonstrating how market-based economies can deliver superior outcomes for all participants.

Friendshoring initiatives operating at the multilateral level demonstrate concrete alternatives to Chinese economic coercion. The recent announcement of the Sojitz-JAGA-Alcoa gallium project in Australia exemplifies the right direction, creating resilient supply chains among trusted partners as China continues to repeatedly weaponize rare earths. Each instance of Chinese economic coercion serves as a reminder of the urgency for building alternative supply networks that reduce dependencies on unfair competitors. New patterns of overseas economic development merit serious exploration, particularly as the United States has significantly reduced USAID while the Development Finance Corporation (DFC) remains operational and active. Clear opportunities exist for sovereign lending in crucial sectors such as energy infrastructure, as well as building administrative capacity through training competent and ethical officials in emerging, middle-income countries. This capacity building is crucial for ensuring continued adherence to the rule of law in economic matters, creating stable investment environments that foster transparent governance and enable sustainable development. Based on a recent interview with President Tanaka of JICA, rethinking approaches to overseas economic development in partnership between American and Japanese institutions significant increases the potential of effectuating positive impact in regions where both countries share strategic interests.

Making the case for Japan in Washington

Despite perceptions that Japan lacks sufficient appreciation in Washington, the challenge lies in communication strategy. Many in Washington think favorably of Japan but do not truly understand its motivations or capabilities. Making the effective case requires focusing on stakeholders’ needs in concrete terms. Recent voter concerns about cost of living create opportunities to explain how Chinese unfair competition harms ordinary Japanese and American citizens, demonstrating why Japanese investment in the United States and U.S.-Japan technological cooperation like Rapidus produce real-world impacts.

Effective engagement demands recalibration when results fail to match efforts invested. Organizations must develop better metrics by first clearly defining end goals—consistently demonstrating why the U.S.-Japan relationship matters in tangible results, not just principles. Japanese firms and government representatives must also shift from primarily collecting information to being proactive, especially considering that this administration is receptive to Japanese ideas and good faith engagement. The Nippon Steel deal demonstrated that personal engagement beyond Washington, particularly with state-level delegations like the Pennsylvania Senator David McCormick, is instrumental.

Person-to-person relations through mechanisms like the JET Programme and Nippon Zaidan fellowships create foundations for relationships that last decades, but these programs also require reorientation toward measurable results. Thinking systematically about investments is essential—and not merely funding isolated projects but considering how investments cohere toward larger strategic objectives will be beneficial. For example, establishing Japan chairs at universities with strong engineering, business, and policy programs allows broader impact as students are able to apply their Japan-related knowledge across diverse fields. The rare earths challenge illustrates the need for long-term systematic thinking, as this issue requires sustained commitment to building alternative supply chains.

Q&A

Q:
How can a benchmark be defined for terms such as “rebalancing” or “remaking of order”? What kind of order does the Trump administration want to design and rebalance? What would be a benchmark in trade deals?

William CHOU:
Terms such as “rebalancing” or “remaking” mean constantly looking back to previous times when things were balanced or heavily industrialized, which indicates the thought process of President Trump, who cares about images and memory. This may also be a major reason why he opposed Nippon Steel’s deal to purchase U.S. Steel. Trump’s idea of industry is a traditional one based on manufacturing. While he wants technological leadership, he also values the ability to produce materials and goods domestically, particularly since he experienced the challenges as president during the COVID-19 pandemic. Economic security can be described as being able to conduct economic activity without fear of external coercion or disruption within a broadly market-based framework. This aspect is part of Trump’s emphasis on revitalizing American industry until there is no need to worry about external coercion or dependencies.

Q:
Japan is a major allied country of the United States. To bind allied forces together, a common agenda is needed. Economic coercion and economic distortion could be negative factors, but a positive message to allied partners is also necessary. What would that message be?

William CHOU:
While friendshoring for negative reasons is inherently negative, it does result in positive action. China’s current actions on rare earths represent a massive overstep, using America’s export controls on semiconductors to deny rare earths end use and export licenses. These negative forces are forcing cooperation, but positive results emerge when investment efforts begin together. The gallium issue is now progressing. The United States and Australia have finally agreed to a critical minerals approach for mining, refining, and development. A similar agreement between the United States and Japan is expected, especially given the dominance of Japanese firms like Sojitz in this area. While these are negative reasons reminding us why cooperation is needed, they lead to positive action toward addressing the long-term threat of economic blackmail.

Q:
How likely is it that the coalition in the newly formed Japanese government stays together? How could this affect the U.S.-Japan relationship?

William CHOU:
The LDP has been in power for so long partly because they have experience running government and have existing relationships with the bureaucracy. The Japan Innovation Party (JIP) refraining from participating in the government is realistic as they develop their expertise over time. How likely the coalition is to stay together is challenging to predict. One of the major priorities is cutting the number of diet members, especially in the Lower House, which will be extremely challenging given opposition from small parties and within the LDP. That said, the two parties are fairly aligned on many issues, and the JIP will have a moderating influence that may have wider-based appeal. That said, instability will create problems for the U.S.-Japan relationship. The United States is eager to find partners to work with, and the lack of progress on projects for the 550 billion USD fund reflects the political uncertainty that followed Japan in the past three months.

Q:
Japan and Washington need better metrics of effective engagement for public diplomacy. This is critical to the U.S.-Japan relationship but does not get the visibility it should. What are better metrics of effective engagement?

William CHOU:
Many people in Washington think positively about Japan but do not actually understand Japan’s motivations and capabilities. The comparison of Prime Minister Takaichi with Margaret Thatcher represents lazy thinking. Prime Minister Takaichi’s agenda is fiscally expansionary while Thatcher led privatization in Britain. There is a tendency in media and policy to make casual comparisons not rooted in depth or rigor. Public diplomacy is about communicating how Japan is crucial to supply chains and how deeply rooted Japanese firms have been in American communities for generations. Regarding better metrics, they can only exist if the end goal is known. The right end goal is to consistently demonstrate why the U.S.-Japan relationship matters in terms of real results. Metrics must be calibrated to understand which actors are actually delivering on set goals. A clear vision must be established with periodic verification of progress to ensure consistency rather than a set and forget approach.

Q:
Investment decisions critically depend on the future prospect of the economy. What is meant by “think long-term and systematically”?

William CHOU:
The emphasis is on “systematically.” It is not just about one particular investment but understanding how an investment interacts with all other investments and how they cohere as part of a larger issue, such as by ensuring freedom from dependencies on unfair competitors in terms of rare earths. This is a long-term concern because rare earths demand will only increase for the foreseeable future.

Another example involves improving Japanese studies in the United States. The recommendation was to place a Japanese studies chair position at a university with strong engineering, business, STEM, public policy, and humanities programs, letting that chairperson be the hub that introduces students to Japanese studies so they can apply knowledge of Japan into other areas where they can become leading engineers, programmers, or policymakers. That is an example of thinking systematically—not merely setting up a chair in a political science or history program.

Q:
What are the challenges for Trump facing the midterm election in 2026?

William CHOU:
The administration has been extremely ambitious, trying to do much in a very short amount of time. Given finite resources, manpower, time, and government shutdowns, there is a real question of whether they will follow-through on every action by the midterm elections. This can create tension around whether results have been seen and whether policies are right. When trying to pursue so many different lines of effort, it takes time. Even new rare earths initiatives will not deliver results quickly, as MP Materials will not deliver a new plant in Texas until 2028. This creates uncertainty for the election.

Q:
Many citizens in the United States will face more serious inflation during the same period, partly due to higher tariffs and the persistent fiscal deficit or weaker dollar. How will these environmental factors affect the outcome of the next election?

William CHOU:
Higher inflation, whether from trade policy, external responses to American trade policy, or external trade negotiation tactics like certain material cutoffs creating crisis within the American economy, could very well impact election prospects and ability to implement agendas. One of the biggest criticisms of the past administration was the failure to explain how larger geopolitical and geo-economic issues in economic security competition are impacting ordinary Japanese and Americans. The last administration never provided sufficient explanation, even though it was very easy, especially in the years after the COVID-19 pandemic. This is an opportunity for this administration to be proactive and inform the American people and voters on how and why things are the way they are, challenging the American voter to understand that these are problems that need to be addressed together.

Q:
The Trump administration seems to be focused on trade issues, especially tariffs and trading of goods. But currency is also an important issue. What is the perspective of the exchange rate?

William CHOU:
On exchange rates, from the U.S.-Japan standpoint, Secretary Bessent and Finance Minister Kato agreed in June that the U.S.-Japan exchange rate, the yen exchange rate, was operating at a level consistent with market principles with no issues to be addressed. How the new policy of the new government in Japan will affect currency rates remains to be seen. There was initial weakening of the yen, but it has been moderated somewhat with the presence of the JIP and influential members within the LDP who are influencing policy. One of the major concerns about the 550 billion USD investment was that before the elements of exactly how it would be financed were known, there was real concern that it would influence foreign exchange rates and currency rates between the United States and Japan. Now that it is known that JBIC is primarily financing it with dollar-backed JBIC bonds, transfers of American dollars from Japanese foreign exchange holdings to the United States, and through the use of both Japanese and likely American loan guarantees, this has moderated many of the concerns that the investment commitment would be a source of disruption to the currency exchange.