Economic disruption and uncertainty have been one of the most notable trends during the second Trump administration. From the trade war with China to on-again-off-again tariffs on even the closest US allies, countries around the world are trying to chart a course to economic security in this age of disruption. In the first Trump term, two countries stood out as exemplars of working closely and effectively with the Trump administration: Japan and Australia.

How did Japan find economic security and certainty in the first Trump administration? How are they faring with the second Trump administration? And how can allies and partners like Japan and Australia work together to bolster their economic resilience in turbulent times?

To discuss these questions, Director of Engagement and Impact Mari Koeck sat down with Satoshi Yamada for an interview. Yamada is a Visiting Senior Research Fellow at the Institute of Geoeconomics with more than 25 years’ experience in the Japanese private sector. Importantly, Mr Yamada was stationed in Washington DC from 2018-2022, during both the Trump and Biden administrations. He worked with US industry associations and think tanks in engaging Congress and the administrations.

This activity was supported by the Australian Government via a grant from the Australia-Japan Foundation.

Mari: To kick things off, it is an interesting time that we are in at present. You know, we're at the start of a second Trump administration. And when you arrived in Washington, DC in 2018, Trump was president then as well. Prime Minister Shinzo Abe already had a close relationship with President Trump, and they released a joint statement affirming their desire to expand their trade and investment relationship that year. Why do you think Japan was so successful in working effectively with Trump in his first term? Can you tell us a little bit about how they navigated their relationship with the US?

Yamada: Yes. Thank you very much. So remembering Trump 1.0 and the basic stance of the US is similar to what is happening right now. So the basic concept is the US, which has trade deficits. The US Government tries to impose tariffs to the countries that have trade deficits. But what is different in the second Trump administration is that now the US is trying to impose tariffs also on countries that have a trade surplus like Australia. Japan’s point of view is similar, but from the Australian side, it might be a different situation. And what happened in Trump 1.0 with Japan, there was already a trade negotiation, and the US had a trade deficit with Japan. And the Trump administration, in those days, tried to impose tariffs on automobiles and automobile parts. One-third of Japan’s exports to the US are from the automobile industry. Japan tried to avoid tariffs and instead agreed to open the agriculture market to decrease the tariff rates on agricultural products such as beef or pork. And with that kind of deal, in 2019, the Japan-US trade agreement was settled. So in the first Trump administration, Japan avoided getting additional tariffs from the US. But now what is happening in the second Trump administration is that already 25% additional tariffs are imposed on automobiles and automobile parts to all countries in the world. So, already the Japan-US negotiation has started on the background that tariffs are imposed. So it's a very difficult situation for Japan and the automobile industry.

Mari: And we have a similar dynamic in Australia as well, where Australia was able to secure an exemption from many of the tariffs in the first Trump term, and they were hopeful they could secure an exemption this time around. But they also were subject to the tariffs that were announced on Liberation Day. They're also subject to the steel and aluminium tariffs as well.

Yamada: And already the negotiation on these trade issues had started between Japan and the US, and Minister Akazawa has been to Washington, DC and is already negotiating with Secretary Bessant, Secretary Lutnick and Ambassador Greer. So it's kind of an uncertain situation, but understanding the negotiation, I think there's one important thing to remember. So President Trump's idea is: by imposing tariffs on other countries, he will promote investment to the United States. But Japan already has a long history of investing in the United States. So that's kind of very unique in Japan's position and maybe different from other countries. This is because from the 1970s, there was Japan-US trade friction in many sectors, including automobiles. And to mitigate this, a lot of Japanese automobile companies have already invested in the United States for a long time, creating a factory and employing US people. So in the 1980s, the maximum amount of Japan's automobile exports to the US was more than 3 million, but now it's around half of that amount. Japan has already made a strong effort to invest in the US and this is not only in the automobile industry but also Japanese companies have invested in the United States. And as a result, Japan has been five years consecutively number one in investments in the stock basis to the United States. This information is from the Japan External Trade Organization and details information from 2023 to this February, when the Japan-US Summit was held. Prime Minister Ishiba mentioned that he’s going to increase the current $0.8 trillion investment stock to $1 trillion. So he's going to stretch further. On the other hand, that's good for the United States, but as Japan has aggressively promoted investing in the United States, if Japan stretches too much, then Japan's industrial base will be impacted a lot.

Mari: You already touched on a bit about what is happening now under the second Trump term. But what will happen, because if Japan has already made a number of concessions and changed a number of their practices to invest more in the United States, is there any room to go further or what happens if they were to try and make further changes in response to these new tariffs?

Yamada: Actually, these days I hear a lot of worries from the Japanese automobile companies. And actually, there's no magic solution. But what Japan has to do is to persistently negotiate with the United States to find a space for a kind of win-win situation. And one positive thing is that our Minister Akazawa mentions that Secretary Bessant, Ambassador Greer have a good feeling about Japan and there is trust between the US and Japan historically. So this is the kind of talk between the US and Japan. So there's no magic solution, but I would like to kind of believe in such a situation.

Mari: Yeah. And so how do you think then, if Japan were to try and do more, it would have a big impact on their economy. How are these changes around tariffs and trade and investment affecting the economy in the Indo-Pacific, in terms of other dynamics that are unfolding as a result?

Yamada: I think rather than just saying tariff is not good, I think we should think in an innovative way. For example, in the first Trump administration, former Prime Minister Abe instead of being passive aggressive, he proposed a new kind of notion, for example, like the Quad or Free and Open Indo-Pacific and that kind of thing. I think instead of just saying “no,” proposing something. I think that's kind of President Trump would like to listen to. And former Prime Minister Abe tried to understand President Trump as much as he can. So, I think by doing so he got the trust from President Trump. If you saw the White House announcement on reciprocal tariffs when it was announced at the White House, even now President Trump mentioned about how he trusts former Prime Minister Abe. So, I think understanding President Trump's mindset is also important when negotiating with the US Government.

Mari: You're right that Prime Minister Abe had such a close relationship. He was kind of a first leader in terms of all the world leaders who would go to Mar-a-Lago and spend time with President Trump. He started doing that early and often. And I think this time around, a lot of countries saw how successful Japan was in managing that relationship with Trump in the first administration. And so now a lot of world leaders are doing the same thing. They're pursuing that strategy that he set up. Because really building a trusted relationship like that makes a big difference. So how do you think these tariffs and the other changing dynamics around trade and investment are playing out in the economy of different countries around the Indo-Pacific? Are we seeing any changes in trade flows? Are people making different strategic calculations as a result of this?

Yamada: Coming to Australia this time, I really kind of understand the importance of relations between Japan and Australia. Both countries are members of the TPP [Trans-Pacific Partnership] and also think the promotion of free trade is important. And both countries have a large amount of trade and are in good relation. Recently, Japanese companies are investing more and more in Australia. This kind of good relations, there's a lot of potential to expand. And from the economic security point of view, there are a lot of places to complement each other.

Looking at the trade from the Australian point of view, Japan is the second largest export country and the fourth largest import country. And from a Japanese point of view, Australia is also important in the sense that Australia is the third largest country in imports. And especially when it comes to economic security in energy, Australia is really important for Japan. As Japan's energy self-sufficient rate is very low, a little more than 10%, but Australia is around 350%. And for that reason, the number one country for Japan’s energy imports is Australia. And coal imports are also from Australia.

Yamada: And when thinking about rare metals. For nickel, Australia is the number one country that Japan imports from. And considering economic security, in 2022, Japan made the Economic Security Promotion Act into law. And the key concept in understanding this Economic Security Promotion Act are two notions. Strategic autonomy and strategic indispensability. Strategic autonomy refers to reducing excessive dependence on other countries in areas essential to the lives and economic activities of Japanese citizens. And strategic indispensability, on the other hand, involves making Japan's presence essential in sectors critical to the international economy. And on this point, I think Australia is really important in the sense of strategic autonomy in the energy sector. The Japanese Government defined 12 essential goods that are important for Japan's strategic autonomy, and LNG and critical minerals such as nickel have been selected. To stabilise Japan's supply chain in energy, the Japanese Government will finance Japanese companies to support stabilising the supply chain and especially when it comes to critical minerals. The Japanese Government could finance feasibility studies on some projects so that it will catalyse Japanese companies’ investment to Australia.

Mari: Critical minerals are a very interesting area for Australia. Australians like to talk about how, in terms of the Olympics, they punch above their weight. They get way more medals per capita than other countries. They do really, really well and are always one of the top performers in the Olympics. And I feel like critical minerals are an area where Australia does punch above its weight as well, in terms of having so many of these essential resources and having them in such large quantities. They export more nickel to Japan than any other country, they're also the number two producer of nickel globally. There are a lot of the critical minerals on lists of different countries are seeking and looking out for, and Australia has them. However, there's a divide between the critical minerals that Australia is already producing and the critical minerals that Australia has in reserve but are not in a state to be extracted and utilised. And as Japan is finding in other countries, are finding the importance of a lot of these rare earth metals, the importance is increasing. But to turn that resource into something helpful, there's a long journey that it has to go through. And Australia is not there yet.

Yamada: And I think it's similar to the Australia, but Japan are also trying to promote the green transition and also the digital green transformation and digital transformation. And when it comes to digital transformation, as Japan is investing much on semiconductor production and also considering that data centres will be more important than ever, and the energy supply is going to be much more important. So Japan has to kind of stabilise their energy supply. So in this sense, Australia will play a much more important role than now. I think Australia is promoting future made in Australia. And from an Australian point of view I think that on one side, investment screening is important to promote trusted investment to Australia. And in that sense, I think Japan is the right country to invest in Australia. And currently Japan, is the third country after United States and the United Kingdom. Japan is the number three investment country in stock for Australia.

In addition to the traditional critical minerals nowadays, green transformation and digital transformation investment is increasing. So in that sense, I think Japan could play an important role. And for example, last year, green transformation Japanese companies like J-Power or Idemitsu invested in renewable energy and in the digital transformation. Lexus electronics also invested in Australia. And as Australia's cost of employing people is increasing and with the shortage of high-skilled workers, I think the transformation is getting more and more important. And so in this aspect too, I think there's space for Japan to invest more in Australia.

Mari: I'd love to hear what number have you selected to really highlight for us today? What number do you want to share?

Yamada: The investment amount from Japan to Australia. So this information is based on the Japanese Government-related organisation Japan External Trade Organization, from their 2023 information. So in 2023 the investment amount in stock is $141 billion. So it's a huge amount. And this is next to the United States, United Kingdom and Japan is the number three country. But there's a lot of space that Japanese companies could invest more in Australia because both countries support free trade and have trust in each other. And as Japanese companies also kind of want to avoid uncertainty. I think there's a lot of certainty among both countries. So I think Japanese companies are willing to find opportunities to invest more. So in that sense, I think there's a lot of positive information on both countries. And this time coming to Australia, I felt a lot of kind of Australian people saying good things about Japan, and I'm more persuaded that both countries’ relations will get better.

Mari: Wow. That's fascinating. And I was just running some quick numbers. That number 141 billion AUD. That is a huge percentage. That's a sizeable chunk of Australian GDP each year. It'd be around 5% or something of Australian GDP. That's the equivalent of the amount of investment that Japan is investing in Australia. So that is a really big number. Well, thank you so much for joining us today.

Yamada: Thank you so much for inviting today.