Japan Reacts to Trump’s Victory, With Sheila Smith (Transition 2025, Episode 6)

LINDSAY:
Welcome to The President's Inbox. I'm Jim Lindsay, the Mary and David Boies distinguished senior fellow in U.S. Foreign Policy at the Council on Foreign Relations. This is the sixth episode in a special presidential transition series on the President's Inbox. From now until Inauguration day, I'm sitting down with experts to unpack who will staff the Donald Trump administration, and how it will likely approach the many foreign policy challenges it faces. This week's topic is Japan reacts to Trump's victory.

With me to discuss how Japan views Trump's return to the White House, and what his presidency might mean for U.S.-Japanese relations, is Sheila Smith. Sheila is the John E. Merow senior fellow for Asia-Pacific studies here at the Council. She has written extensively on Japanese politics and foreign policy. Her most recent book is Japan Rearmed: The Politics of Military Power, and she recently wrote a piece for The Diplomat, titled "Governing From Weakness: The LDP Under Prime Minister Ishiba Shigeru." Sheila, thank you very much for joining me on the President's Inbox.

SMITH:
Thank you, Jim. It's a pleasure, as always.

LINDSAY:
So, let's begin with the big question. Donald Trump wins on November 5. What has the reaction been in Tokyo?

SMITH:
So, in Japan, there is a fairly broad sense that this wasn't a big surprise. I think there's a little bit of worry about what a second Trump administration might bring. The Japanese, as you know, had a fairly reasonably comfortable relationship with President Trump during his first term in office. Then, Prime Minister, Shinzo Abe, who has since passed away, very early on, established a personal relationship with then candidate Trump, who had just been elected. Went to visit him, played golf with him, really developed, I think, the personal ties that allowed the U.S.-Japan policy conversation to have the benefit of confidence and trust by a new president. We should also remember that South Korea was going through a moment of turmoil at that moment too, and President Park Geun-hye had been indicted, and so there was no president in South Korea, the other ally in the Indo-Pacific.

LINDSAY:
I just have to correct you. Australia would want to note that it's-

SMITH:
Oh. I apologize.

LINDSAY:
Let's say Northeast.

SMITH:
Northeast Asia.

LINDSAY:
Also, don't want to leave out the Philippines.

SMITH:
Exactly. We don't want to be too focused on Northeast Asia, but Northeast Asia is what was in my mind, but the Korean leader would also have had a conversation with the president about their alliance in the future of Northeast Asian security, but Abe really held forth, I think in those early, I'd say, about six months of the first Trump administration on what ought to happen in Asia, and what the U.S. and its allies should be doing in the Indo-Pacific. So, it was a pretty nice place for Japan to be pursuing its interests. This time is different, right? You have a president-elect now coming in, who has had one term under his belt, so to speak, has very specific ideas about allies and alliances, and has a fairly strong view—hawkish, some might say—on China. So this is not a moment where a Japanese leader's going to stop by and make friends, and say, "This is the way it ought to be. Let me teach you a little bit more about the Indo-Pacific." This is going to be a different challenge, I think, for Prime Minister Ishiba.

LINDSAY:
Let's talk about that particular challenge for him, and first, do you think he can replicate what Prime Minister Abe did? I remember going to Tokyo early in the first year of the Trump administration, and I was struck by how forthcoming many of the Japanese officials I spoke with were about how pleased they were with the ability of Prime Minister Abe to establish this relationship, and indeed, it was in some sense almost un-Japanese like. They were patting themselves on the back about how calculated it was, from their point of view, to try to build that relationship. Is that possible this time around? Does the new Prime Minister have the kind of personality to pull this off? My understanding is he doesn't play golf.

SMITH:
No, he doesn't, or at least he doesn't play well, I think.

LINDSAY:
Maybe he's getting pro lessons right now.

SMITH:
He's probably out on the green as we speak. So I think, first of all, no, this is not an opportune moment to reopen the Abe playbook, and I say that for two reasons. One is partly about Ishiba, which I'll talk about in a sec, but second is this is not the old Donald Trump either, right? Which is what I was alluding to my first response, but I think this is a moment to sit and watch to see what the Trump 2.0 priorities are going to look like. I think that one of the great legacies of Abe Shinzo wasn't just his personal tie with President Trump, but was also this round for President Trump is going to be built on, in some ways, a foundation of respect for Japan and Japanese leaders. He said that when Asō Tarō, a leading member of the LDP, went to see him privately during the campaign. What struck me there is he, of course, alluded to his friendship with Abe Shinzo, but then went on to say that he respected and he liked the Japanese people.

And remember, President Trump went on a state visit to Japan during his first term in office, met the emperor and empress, the new emperor and empress of Japan for the first time. They rolled out the red carpet, pomp and circumstance. It was a very successful visit, and I think that sentiment is probably pretty genuine, that Japan and the Japanese people have a positive imprint on Donald Trump, and that was not the way it was in the campaign, as you remember the first time around. He was bashing Japan for its trade policy and should defend itself, but I think we're in a different space, so I believe that this was going to be different. There's nothing out there for President Trump to really criticize about Japan. There'll be issues, of course. The second piece is Ishiba-san. Prime Minister Ishiba is somebody. We all know we've known for a long time. He just came into the leadership of his party, fifth time he's tried to become president of the LDP.

LINDSAY:
But he's coming to the leadership at a difficult time, because the LDP lost seats in the recent election, right?

SMITH:
So, I was getting to the general election, but he came into the leadership, his party, first and foremost, right? On a pretty divided platform within the party, even within the conservatives. Then, he went to election, which was due to happen this year at some point, and then, yes, you're right. The LDP has been in majority governments, and coalition are on its own for most of the post-war period, but had a severe setback, lost 58 seats in the lower house.

LINDSAY:
Another example of an incumbent party taking it on the chin in 2024.

SMITH:
Exactly, and what's even worse is he doesn't have another coalition partner that has given his coalition the majority in a parliamentary system in the lower house you know is a legislative mandate. So he is in a super weak position, in the sense that it is a minority coalition government. He will have, at every turn, to invite other opposition parties to join him in whatever policy he's trying to legislate. The first test will be the budget, the national budget, which is coming up soon. He may fail on that to get enough votes to pass the government's budget. Again, something that we, democracies, seem to have trouble doing these days, but if he fails, that may then trigger a no-confidence vote. He may be gone by April, so that's the worst case scenario for Ishiba-san. But then a couple of months beyond that, there's an upper house election. So again, the LDP will have to go to the polls, and the Japanese voter will have yet one more time to tell them how disappointed they are in political scandals, and money corruption issues, and things like that. So Ishiba's got his hands full at home–not the best position to be starting out a relationship with a second Trump administration.

LINDSAY:
So we just talked about what things look like inside of Japan. I want to get your assessment of how Japan views its neighborhood, views its interest. From the vantage point of Tokyo, what are they particularly worried about?

SMITH:
The rise of China, number one, and that's been happening now over decades, so this is not something-just-happened-yesterday kind of a problem. I think, for the Japanese, if those people who are interested, the Japanese government revised their national security strategy at the end of 2022. It's a document that's translated into English. People could read it. They identified the threats to Japanese security and prosperity, and number one is China, so very direct language in that strategy.

LINDSAY:
And that was an unusual step by the Japanese government.

SMITH:
It was. In the previous one, again, done under Prime Minister Abe, the previous iteration, which was the very first time Japan has ever done a national security strategy. There was concerns and there was worry, but the threat word was not the driving concept of that strategy. Now it's very clear, and China is at the top of the list, and Japanese policymakers, as you know, use the term existential threat when they look at China. We can talk more in detail about what specifically they're worried about, but I think that's probably pretty obvious at this stage.

The second, of course, is proliferation, nuclear proliferation, and North Korea has amassed the capability and missiles, so the delivery capability, but also everybody believes that they have enough fissile material for somewhere in the order of 10 to 20 nuclear weapons. So that's a kind of a done deal I think in terms of technology, even though we haven't quite seen a nuclear test lately. But that proliferation means that the Korean peninsula dynamics have changed, but so, too, has the question of American extended deterrence, our ability to extend nuclear or strategic protection to our ally, our non-nuclear ally, Japan.

LINDSAY:
What is the state of the debate in Japan on that question, Sheila? Because, obviously, Japan is unique among countries, because it suffered the only atomic or nuclear attacks, and there's a great strain of pacifism in the Japanese public, but they do face this question of whether or not they can rely on the American nuclear shield?

SMITH:
So, let me just put a little footnote for us to come back to, but the third threat, I think, we should talk about is Russia, and that's something that's also important, especially in the wake of Russian aggression against Ukraine.

LINDSAY:
I apologize for the diversion. I'm just curious on this point.

SMITH:
No, no, no. But the diversion is an important one. So we have two non-nuclear allies in Northeast Asia, South Korea and Japan. South Korea has had a political debate, and continues to have a political debate about whether or not the acquisition of nuclear weapons is now required to ensure its ability to deter North Korea, first and foremost. But if you close your eyes and imagine a map of Northeast Asia, there's Russia, there's China, there's now a nuclear, although it's not an acknowledged nuclear power, but there's a nuclear capable North Korea. Japan is surrounded, right? If South Korea decides it, too, wants to have nuclear capability, then that will close the circle, so to speak.

But as you point out, the Japanese public has very deep sentiments, anti-nuclear sentiments, given the atomic bombings of Hiroshima and Nagasaki at the end of World War II. I think it would be a very difficult task for any government of Japan to move Japan in the direction of developing its own nuclear capability. That being said, it has the scientific expertise to do it. It has to a certain degree, access to plutonium and other recyclable fissile materials, and it has us. Would we help them? Would we not help them? There's all kinds of factors here. Japan–

LINDSAY:
So, they could clearly do it without U.S. help.

SMITH:
They could do it. There's no question that they could do it, but will they choose to do? That remains to be seen.

LINDSAY:
It's an important point, it's a matter of choice.

SMITH:
It's a matter of choice.

LINDSAY:
Not capability.

SMITH:
Exactly.

LINDSAY:
Okay, so tell me about Russia.

SMITH:
So Russia is the new piece of the threat, and again, this comes on the wake, the invasion of Ukraine. It's not entirely dependent on the Russian behavior in Europe, but it's been accelerated. Concerns have been accelerated. Why? Because Russia now operates exercises with the PLA, the People's Liberation Army and navy.

LINDSAY:
Chinese military.

SMITH:
Right, China's military. There are strategic bomber exercises. There are fleet exercises. There's plenty of reason to think that, should there be a crisis, should Japan's security be challenged, that the Russians and the Chinese would be quite happy to work together, so there's that. Then, there's obviously the North Korean missile launches, which we've seen since at least 2017, just escalate in number and sophistication. So, Japan is worried about Russia, partly because Russia would be integrated probably with China, should there be a regional contingency, but it's also worried about Russia, because recently the Russians and North Koreans signed a new defense pact or they re-upped their–

LINDSAY:
Well, North Koreans are going to fight in Ukraine or against Ukraine.

SMITH:
Exactly, and the real worry for Japan is that Russia will transfer technologies, that the North Koreans haven't really managed to do on their own, things like–

LINDSAY:
My understanding is the Russians are doing exactly that, and not just with the North Koreans, but also with the Chinese.

SMITH:
Exactly, so you are watching, in Northeast Asia, the repercussions of the European War really bleed over and spill over to the military balance in Northeast Asia; satellite technologies, submarine technologies, MIRVing missiles, so putting multiple warheads on what's an already capable missile force of the North Koreans.

LINDSAY:
Yeah, the Russians have lots of goodies they can give out to get support–

SMITH:
Lots of goodies

LINDSAY:
...For their war against Ukraine.

SMITH:
So, that's a worry for Japan, and you'll see Japanese diplomats are quite quiet about it publicly, but their ministry of defense, of course, is watching very carefully to see what our intelligence folks are gathering, but also what they think they need to do perhaps going forward in terms of ensuring they're deterrent.

LINDSAY:
Going back to the issue of Japan having a new strategy that moves from talking about worries to talking about threats, Japan is also, my understanding, upped its investment in its defense capabilities, which are actually very good, even though Japan has a variety of constraints, most notably Article IX. Just sort of lay out for me what the status of that is.

SMITH:
So, at the same time that national security strategy was announced in December of 2022, a new ten-year defense plan was also announced, and the interesting thing there is this was under Prime Minister Kishida, two pieces of the puzzle were particularly interesting. One is they promised to up their defense or security-related investments to 2 percent of GDP, so that's really not doubling, but almost doubling Japanese security-related–

LINDSAY:
Because the cap previously had been 1 percent, almost like a holy number.

SMITH:
The holy grail, but you would see it go over, and back and forth across that threshold, but it was a self-imposed cap. It was designed way back when by Prime Minister Nakasone to say, "Don't worry. We are not going to build massive military capability, commensurate with our economic–"

LINDSAY:
Even though Japan is capable of doing so.

SMITH:
Yeah, they could, but they decided to reassure their neighbors instead, and now we're in a very different moment, but the 2 percent number is important also, Jim, because it's the target in NATO, so this is Japan saying, "We are going to move to the same kind of requisite capability that you would expect out of a NATO partner." South Korea, I don't know if you know, but South Korea's closer to 3 percent. Much smaller economy, but also much more mobilized military capability, right? Because of the north.
The second introduction is long-range strike, what we call conventional strike, and this is probably going to manifest itself in terms of Tomahawk missiles initially, but the commitment by Japan is to invest in the technology eventually, so that they, too, would be able to build that defense industrial base themselves. This will allow them to have strike capability, again not nuclear but conventional, that could reach the Chinese mainland, could reach the Asian mainland. Again, very specific deterrent designed to give everybody a heads-up around Japan and continental Asia. "Don't take us for granted. Just because we have Article IX of our constitution, and we are restraining our military, it does not mean we will not respond."

LINDSAY:
Well, Northeast Asia has been a dangerous neighborhood for a while, and it's gotten a lot more dangerous as you've laid out, Sheila. I'll ask you a question that I would not have asked you if we had done this podcast 48 hours earlier, but obviously, we're doing our conversation in the shadow of a failed effort by the President of South Korea to declare martial law. Subsequently, there's been a motion to impeach him filed in the South Korean National Assembly. I don't want to get into why this happened and the rest, but how do you think this is being viewed in Tokyo, and what does it mean for how Tokyo tries to assess its own security in the region?

SMITH:
I can't imagine it's being viewed with anything but dismay, and there's two pieces. One is, what does this mean about the Japan-South Korea relationship? Then, the second is obviously the trilateral, which is South Korea, Japan, and the United States, which has made some significant progress in terms of security integration of late. But the first is Prime Minister Kishida, and then when Ishiba-san came on board as prime minister, he very quickly said he was going to follow Kishida's lead with the summit diplomacy with President Yun, that the Japan-Korea relationship was very valuable and important to Japan.

So, again, we have continuity there, in terms of trying to repair the damage that was done in earlier moments between Seoul and Tokyo. We can get into the details if you'd like, but suffice it to say there was a lot of progress being made, that both sides had put a lot of political capital into this relationship and making sure that trust was beginning to be rebuilt. One of the elements of the loss of trust was also their military-to-military relationship. There had been an incident where the two navies had fought bitterly, because the Japanese accused the South Korean Navy of locking fire control radar on their aircraft.

LINDSAY:
That's a very unfriendly gesture in the military.

SMITH:
That's very unfriendly. It's kind of hostile, actually, and then the South Koreans deny they'd done it, anyway. But there was a real break there in terms of the military-to-military relationship. What's happened since is you've now got trilateral military exercises. We refer to them as Freedom Edge, but what the military call multi-domain, so cyber, surface, submarine, air, all kinds of ballistic missile defenses, integrated defenses. These exercises were just begun this year, and we're in, I think, our third iteration perhaps at the moment, and it's been a success all round. So U.S.-Japan are okay. Military-to-military coordination has moved forward quite expeditiously and to everybody's benefit and delight. The next year, 2025, is the 60th anniversary of the Japan-ROK bilateral normalization treaty. The only reason I flag this is because this is obviously where some of the historical memory politics emerge, and there are still many in South Korea who think Japan hasn't gone far enough. Japan and Japanese policy makers, in particular, think they're always being bashed on history by South Korea so–

LINDSAY:
I've heard that theme when I've been in Tokyo.

SMITH:
Both themes. Both capitals.

LINDSAY:
Yes.

SMITH:
Yeah, but I think with Ishiba and Yoon, there was going to be a really pretty constructive effort to get beyond that commemoration. To be honest with you, I can't read my crystal ball on South Korea, but I doubt that Yoon will be in office much longer, and if he is, he'll be so significantly damaged by this latest episode with the martial law, that I can't imagine he'll be able to do much of anything.
One last comment on the trilateral, which comes back to our theme, which is the next US administration, the first Trump administration didn't really lead and guide the trilateral conversation very much there. I don't think that was something they were interested in. They were more focused on U.S.-Japan.

LINDSAY:
Well, that's how Donald Trump tends to think of the world in terms of bilateral-

SMITH:
Bilaterals.

LINDSAY:
...Relationships.

SMITH:
Not fostering trilat for the good of the region and things like that. We are in a different moment. The threat and the perception of the United States has also made this trilateral even more valuable than the U.S. has always thought it was, so this may be different this time around, but I think the Biden administration did a lot of work with intelligence chiefs in all three countries, with uniformed leaders and the joint chiefs of all three countries, in addition to national security advisors of all three countries. A lot of effort had been put into restoring–

LINDSAY:
And that's all stuff that really happens below the radar. It's not on the-

SMITH:
Right, not conspicuous.

LINDSAY:
...Front pages of the New York Times or the Washington Post.

SMITH:
Unlike the Quad and some of these other things that got lots of headlines, that was quiet, sustained effort, and it started on almost day one from the Biden administration's point of view, so that was a repair, and grow, and develop exercise that's so important in Northeast Asia, because it communicates to Pyongyang, to Moscow, to Beijing that this alliance actually works as a security alliance, and it expanded the agenda to also economic cooperation and supply chains, to potentially defense tech, innovation going forward, and also coordination between Seoul, Tokyo, and Washington on the response to the Russian aggression in Ukraine. So all the way over in Europe, this trilateral made a big difference to the way that United States and Japan and South Korea could present their interests on the global stage.

LINDSAY:
So, you've ably laid out the context in which the Trump administration is coming to office, so let's talk about what policies are likely to be coming from Washington. But first, if I could, can you give me a sense of the people coming into the Trump national security foreign policy team? Do we see people who have deep knowledge of either Northeast Asia or of Japan, specifically? And does it really matter that you bring people in that actually know the countries they're going to be working with?

SMITH:
Well, those of us who sit here in Washington always think it matters.

LINDSAY:
Okay. Fair enough.

SMITH:
Probably more than it may, but often when we see new administrations coming in, who's going to be in charge of what, actually, does matter, because it signals, not only that person's perspective on the problem, but also what people are liable to come in underneath to that cabinet level appointment. So, Marco Rubio at State, Representative Waltz as National Security Advisor, these are two people who have a very clear interest in China, who've worked on China for a long time. People call them hawks, but they're pretty realistic about Chinese power, and pretty forward leaning on the idea that this is a strategic challenge for the United States. Japan–

LINDSAY:
Which seems to be a bipartisan consensus.

SMITH:
Yeah, so I don't think it's very controversial, that point of view. Japan will like that, so I think that's not a problem. Whether either of those two individuals have a lot of context or think deeply about the alliances, I don't know. I've heard Marco Rubio talk about the need for alliances and coalitions in the Indo-Pacific, so I think he's predisposed to working closely with Japan and other allies. I don't know Representative Waltz's position on this, so I'm just not familiar. One appointment in the White House on the NSC staff that will be under Waltz is Alex Wong, who was in the first Trump administration, worked in the State Department, worked on North Korea policy, so obviously familiar with Northeast Asia, and has worked with Mitt Romney and other Republican leaders. So again, this is somebody who knows the region and probably pretty pragmatic. Don't know if he's had any exposure–

LINDSAY:
He's Deputy National Security Advisor.

SMITH:
Yeah. Don't know if he's had any exposure to Japan, our alliances, or his interest or not, or it will be his responsibility. Somebody who's hovering, I don't know where he's going to land, is Bill Haggerty, senator from Tennessee, who used to be the ambassador to Japan in the first Trump administration, so the Japanese know him well. He's very active in the U.S.-Japan space, the Japan-America societies, and so he continues to carry that over. I think he represented a fairly straightforward Trump line on alliances when he was in Tokyo. In other words, burden sharing, trade policy. These are the kinds of things he cared about and articulated in Tokyo. I expect he may land in a cabinet position. There's rumors that he may still be being considered for a cabinet position. He may land somewhere else. I don't know, but he shows up in photographs, standing next to Trump, and he's in that orbit, so that would be somebody who does know Japan well.

LINDSAY:
Well, one of the big questions is, who is going to end up as Secretary of Defense?

SMITH:
Yes, yes.

LINDSAY:
I don't know whether Pete Hegseth is going to stay or withdraw, given the news that has broken.

SMITH:
Right.

LINDSAY:
But whoever is in defense is obviously going to spend a lot of time or should spend a lot of time thinking about Japan.

SMITH:
And that's the place where I think, for the alliance and for the Indo-Pacific more broadly, that's going to be a really critical appointment. So again, in the news, we're following the headlines. Who knows? Ron DeSantis' name came up. Ron DeSantis went to Tokyo, met the Japanese Prime Minister, was a trade mission as governor of Florida, but this was when DeSantis was still in the running for the presidential primary and the Republican Party, so there is contact there, and I don't know how much depth on DeSantis' part about the Alliance, but clearly they know him. Then, if it's Hagerty, I mean, that's another name that I hear was circulating for SecDef, but again, we're jumping a little ahead of Hegseth's.

LINDSAY:
And as you point out, it also is not just who's at the top of the organizational chart–

SMITH:
Right, right.

LINDSAY:
...But who populates it is going to be critical, and then also how the various parts of the government work or don't work together–

SMITH:
Right.

LINDSAY:
...As case may be. But sort of walk me through what you think are likely be the policies that the Donald Trump administration is going to pursue vis-a-vis Japan. Do you think it's going to be heavy on the China aspect? Is it going to be on the bilateral trade aspect? Something else that we're not thinking about? All of the above?

SMITH:
So, the Japan-specific issues are pretty obvious from the first Trump administration. Trade policy and burden sharing, defense burden sharing. Last time Donald Trump was president, South Korea got the brunt of the host nation's support. How much are you going to pay for our troops to be stationed on your soil? That conversation. Both our allies, South Korea and Japan, have these bilateral agreements. They're renegotiated every five years. Japan's is up in 2027. So, bingo, right in the middle of this upcoming Trump administration, so there will be a little spotlight on how much Japan contributes to the U.S. forces who are stationed in Japan.

Now, the host nation's support covers all kinds of things. We don't have to go into all the details, but it runs from ship maintenance and repair to the salaries of the people who work on the bases to the utilities costs of the bases, things like that, so it's not an insignificant amount of money, but I think what the Japanese government, under Abe, wanted to do was to say, "Look, we're happy that forces are here. We're happy to support U.S. forces in whatever way we can, and we will continue to increase our share of that burden sharing, but we also want to increase our own military capability." So, you're starting to see Japan move away from, "Oh. Let me pay for you guys to stay here," and towards, "Let me make our own military stronger," and we talk–

LINDSAY:
Is that in the U.S .interest?

SMITH:
I think, yes. At the end of the day, a strong Japanese capability and a readiness, which is what they're really focused on for the next 10 years, 7 years now, that's what we want. We want Japan with counter-strike. We want Japan with teeth. We want Japan, whose military actually prepares for war. We want what's coming up in 2025, which is the establishment of a permanent joint operational command for their military, and to translate that into normal people speak is their three services, air, maritime, and ground, will have an operational command that's joint. There will be a commander, whatever uniform he or she wears, probably he, in Japan at this point still, but they will be in charge of any operation that Japan's military has to undertake.

This is new for Japan, brand new, and we are also making changes in our Indo-Pacific command. We have already announced that our U.S. forces in Japan will go from an–it's largely been an administrative command structure, gradually transitioning to an operational command. It'll look a little bit more like the forces in Korea. It'll look a little bit more like the NATO command. It'll begin to adjust to what Japan is doing to change its operational readiness. That, in terms, again, readiness and being ready to fight tomorrow if they have to, huge institutional change, so I suspect that that's also going to be something that the Trump administration will support and want to see more of.

LINDSAY:
What about on China? And I understand that Trump wants to be tough on China. America wants to be tough on China. Japan is concerned about China, wants to take a tougher line. That doesn't necessarily mean that they agree on how to go about prosecuting a strategy.

SMITH:
So, anywhere from about, and this is private sector research institute kinds of ballpark figures, so not my own research. I just want to make that clear that this is other people's research, but Japan's economy relies, in some way, form, or fashion, about 10 percent on China, 10 to 15 percent depending on which analysis you're paying attention to, and that includes trade, foreign direct investment, all kinds of things. Japanese private sector are like our private sector, somewhat leery about the Chinese Communist Party's management of their economy. Nonetheless, there's a great deal of investment in China that is crucial to Japanese economic success. Therefore, you have mixed opinion on just how tough on China Japan can afford to be.

LINDSAY:
Particularly, because it's not just gross amounts of trade flows or investment. There are potential choke points, particularly in critical minerals.

SMITH:
Critical minerals.

LINDSAY:
Where the Chinese could make you pay a big price.

SMITH:
Huge.

LINDSAY:
And Japan has felt that in the past.

SMITH:
So, rare earth materials, right? When the Senkaku crisis over the islands was blowing up in 2012, absolutely. All of a sudden, delivery of rare earth start to slow down. They start to pile up, and custom sheds in China, and the Chinese said, "We just want to–"

LINDSAY:
It's funny how that happens.

SMITH:
"We didn't do that. It must be some blockage somewhere," but yes, China can make it felt on Japan, right? Their integrity to Japanese economic performance.

But the other piece is, and this is somewhere where I see signs that the Chinese, themselves, may want to flirt a little bit more with a softer, warmer face to Japan, and I think in Peru, when we all had the APEC meeting a few weeks ago–

LINDSAY:
So, to court rather than course?

SMITH:
Yes–there was a very, not a very warm, I wouldn't want to over delve into hyperbole, but there was overtures, right? They changed their visas. You can extend your visa now to 60 days. No need to file paperwork. Come on in. That's the Chinese. There was, "We should have a summit meeting 2025. We should send Premier Li Qiang over to see you." These are things that Chinese have not been doing to Japan since the pandemic and the pandemic ended. They've largely been having a fairly tough line on Japan. Now, Xi Jinping had a visit scheduled in 2020 that got postponed, but there is this high level summitry that's been paused, that I suspect the Chinese are going to dangle a little bit of that in front of the Japanese as well. So, don't underestimate–

LINDSAY:
Is that a play for Japanese public opinion?

SMITH:
I think it's a play for just testing out how frustrated the Japanese may become with us. It's not a necessarily one dimensional kind of play, but as you know, the Chinese are trying to talk to a lot of people about the Americans are the revisionist power here. We're the actual sustainings–

LINDSAY:
We want peace. The Americans are going to upset the apple pie.

SMITH:
Right. We want prosperity. They are protectionists. The Chinese will be playing those cards quite amply, and in some cases, quite deftly. I don't know if they'll be playing them particularly deftly in Tokyo, because there's real serious concern, security, trade, and other kinds of concerns the Japanese have. But we should be prepared that we're not always on the same synchronized diplomatic path going forward. We may be doing hard line here under the Trump administration. The Japanese may be softening up a little bit, not softening substantively, but more meetings, more, "Well, we should talk about this, China." There may be slightly different types of tone and tenor to the diplomacy, going forward.

LINDSAY:
I want to close on one final issue, and that's the issue of trade or tariffs. Donald Trump has made it very clear he's a tariff man, said that the word tariff is the prettiest word in the English language. Wouldn't be my choice, but–

SMITH:
No. I was going to say, many of us would find prettier words, but he likes it. Yeah.

LINDSAY:
To what extent do you think trade is going to become a defining issue between the two countries?

SMITH:
I went to talk to all kinds of private sector folks in Tokyo. I just came back from Japan. That is number one, more than the security, more than the various and sundry ways in which President Trump might change regional diplomacy, et cetera. I think it all depends on whether or not President Trump sees tariffs as a threat to get people to the table, to reset the table. It kind of looks like what's happening now with the U.S. MCA, right? Canada and Mexico are being threatened with specific tariffs. Trudeau went down to Mar-a-Lago. There's already motion. But that agreement is up for revision in a year or two, right? So maybe he's resetting that table in advance. If there's a reset and there's a conversation and there's a threat, we need to talk. Then, the Japanese will go, "Okay, let's talk. What are we talking about?" So, they proved to be quite adept at that during the first Trump administration. So the bilateral trade agreement in goods that Abe and Trump managed to navigate. They did that. But at the same time, Prime Minister Abe also reached out to the Europeans and, for the first time, opened up the idea of a Japan-EU trade agreement, which had been very difficult for both sides. So just, again, back to Peru and the APEC meeting, the Japanese prime minister met with the British Prime Minister. They now have a two plus two meeting on economic security and strategy.

LINDSAY:
But the Brits don't bring much to the table, in terms of the real interest of the Japanese government.

SMITH:
But the focal point is protectionism of that.

LINDSAY:
Right.

SMITH:
So again, there's signaling–

LINDSAY:
There's symbolism to it.

SMITH:
There's symbolism of it, and it also suggests that Japan can chew gum and walk at the same time, or walk and chew gum at the same time, whichever way that goes. They will be trying to figure out what it is that United States needs. Remember, Japanese foreign direct investment in the United States is the highest of any other country. They kind of battle it out with the UK, year on year, but it's a very considerable amount of our foreign direct investment in this country. So they build factories, create jobs, have good deep integration into communities in North Carolina, Indiana, Texas, Washington. So this is a presence. Japan is a presence, not only over there, across the ocean, shipping goods back and forth, but a deep presence in the economy of the United States.

LINDSAY:
Well, I have to ask you this then. There's obviously an irritant that exists right now, a very concrete one, which is the sale of U.S. Steel to Nippon Steel. How do you see that being resolved?

SMITH:
I'm not a CFIUS expert, but CFIUS kicked the can down the road–

LINDSAY:
Well, President Biden came out against it.

SMITH:
Yeah. Well, President Biden came out, but Trump came out first. Candidate Trump came out first. Then, President Biden. CFIUS is the actual formal government review of the deal that was supposed to have been concluded in September, early October, and they pushed it back to December 18, I believe. So this next month or this month already, CFIUS will say whether or not this purchase is a national security risk for the United States, so that's the official government interpretation.

LINDSAY:
I guess I'm more curious in terms of how Japan is going to react, because if the Japanese are saying, "We're working to do all of these things. We're investing more with the United States. We share your concern about China. We want to work with you," but they see very tangible examples of companies that are not allowed to operate or make purchases for whatever the reason, doesn't that take a bit of the edge off in Tokyo of their enthusiasm for the American relationship?

SMITH:
Sector by sector, you're going to see a fairly different response. However, when Prime Minister Ishida came for a state visit in April, both governments studiously avoided the topic. "Well, it's a private sector deal, not about the U.S.-Japan relationship," right? But as we got closer to the election and the decision was impending, and the Biden administration made that statement, Keidanren, which is the Fortune 500 sort of equivalent in Japan, it's the major companies of Japan, for the first time in my knowledge, issued a two or three sentence announcement, which is, "We are watching very carefully. We hope that the United States will make economic decision-making based on the rule of law." So, I think that was, for people who are watching, that's a little bit–Keidanren doesn't ever get involved in that kind of commentary. So yes, I think Japanese private sector companies will be reading the outcome of this very closely, and they will see in it risk. I think that's pretty clear that, whether that risk extends to all of the sectors of the Japanese private sector that are invested in the United States, some of them well-positioned here in the United States–

LINDSAY:
Which create jobs for Americans.

SMITH:
...Jobs for Americans, and products for Americans, and investment potential for Americans. I don't want to name names and companies, but there's a significant number of companies who will watch to see just how political this is going to get in terms of government decision-making. One other thing to watch, Jim, or for your listeners to be aware of also is the UAW is now looking to unionize in the southern states, and so they have a strategy, and it's targeted largely foreign auto companies, not exclusively Japanese. And so, that will be another piece of the puzzle too for the Japanese to watch, is our unions and how our unions are responding to foreign direct investment.

LINDSAY:
On that note, I'll close up this sixth episode of the special presidential transition series of the President's Inbox. My guest has been Sheila Smith, the John E. Merow senior fellow for Asia-Pacific studies here at the Council on Foreign Relations. Sheila, as always, a delight to chat.

SMITH:
Thank you, Jim. Thank you for having me.

LINDSAY:
This presidential transition series is supported by the Carnegie Corporation of New York, working to reduce political polarization through philanthropic support for education, democracy, and peace. More information at carnegie.org. Please subscribe to The President's Inbox on Apple Podcasts, YouTube, Spotify, or wherever you listen, and leave us a review. We love the feedback. The publications mentioned in this episode and a transcript of our conversation are available on the podcast page for The President's Inbox on CFR.org. As always, opinions expressed on the President's Inbox is solely those are the host or our guests, none of CFR, which takes no institutional positions on matters of policy.

Today's episode was produced by Markus Zakaria with Director of Podcasting Gabrielle Sierra. Ester Fang was our recording engineer. This is Ester's last episode of The President's Inbox. She has been a terrific part of The President's Inbox team for the past two plus years. We wish her the best in her next big endeavor. This is Jim Lindsay. Thanks for listening.