Japan deals with the price of playing to Trump: $550 billion

Ryosei Akazawa, then Japan's minister in charge of tariff negotiations with the United States, was sitting across from President Donald Trump in the Oval Office. Trump, deploying a familiar negotiating style, began crossing out numbers on a placemat-size visual aid.

After eight trips to Washington, Akazawa had worked out the outline of a plan with Trump's trade officials. But in the final meeting, the president upped the ante. Akazawa went along with the new demands.

Japan walked away with lower-than-threatened tariffs. In return, it pledged to put up $550 billion to fund U.S. projects, an amount equal to more than one-tenth of Japan's economy. In an extraordinary provision, the deal gave the Trump administration the power to, in effect, dictate how the money is spent.

Three months later, both countries are still trying to figure out what those investments will be. A top concern for many Japanese officials is that the Trump administration may select projects that don't make strategic sense for Japan. That would force a difficult choice: acquiesce, or refuse and face the risk of higher tariffs.

That will be the challenging backdrop when Sanae Takaichi, Japan's new prime minister, meets with Trump on Tuesday. Their discussion is expected to focus on how her debt-strapped nation can both invest hundreds of billions of dollars in the United States and increase military spending -- another move Washington is pressing for.

Heading into the storm, there is a constant: Akazawa, the "tariff minister" who ingratiated himself to the Trump administration. Akazawa has told people close to him that he tried to disarm Trump by being intentionally deferential. For a meeting in the Oval Office, he donned a "Make America Great Again" cap. He held numerous late-night phone calls with Commerce Secretary Howard Lutnick, and trekked to Washington nearly a dozen times.

Takaichi has named Akazawa as her economy minister, meaning he will continue to play a role in talks with Washington. His appointment raises questions about whether Takaichi, who has expressed concerns over the trade deal, will stick to the same negotiating tactics that resulted in the existing pact.

It's not just Japan. Governments around the world have been scrambling to figure out the best approach for negotiating with Trump, "who ignores counsel and acts on impulse," said Ian Bremmer, the president of Eurasia Group, an international consulting firm.

"We've seen that standing up for yourself and a willingness to absorb punches can create the needed space," he said. At the same time, "Trump, at the end of the day, respects people who stand up for themselves," Bremmer said, adding that Takaichi "has the ability to show that to Trump."

Trump's April shock
Japanese government and business leaders were left reeling in early April when Trump announced tariffs on America's trading partners, including 24% on Japan. Automakers, Japan's largest exporters to the United States, began warning of tens of billions of dollars in losses stemming from the higher levies.

Shigeru Ishiba, who was then the prime minister, denounced the tariffs and dispatched Akazawa to the United States to lobby for an exemption. A long-serving member of Japan's lower house of parliament, Akazawa possessed limited diplomatic expertise but was one of Ishiba's closest confidants.

Two weeks after the tariffs were announced, Akazawa arrived in Washington with a deferential tone. He thanked Trump for meeting with "the lowest of the low." He was photographed while wearing the red cap, smiling and giving an awkward double thumbs-up.

According to three people whom Akazawa has since consulted about the negotiations, and who spoke on the condition of anonymity to relay the content of the private conversations, Akazawa said his pose and other interactions had been calculated. They were aimed at appearing unassuming to potentially disarm Trump.

As for the hat, it was one of two offered to him, the people said. The other read, "Trump was right about everything!"

"Having someone like Akazawa go to the United States over and over again, shaking hands with Trump, and looking kind of desperate, the Ishiba administration was able to craft an image of Trump sort of controlling Japan," said Izuru Makihara, a professor of public administration at the University of Tokyo.

This posture did not immediately appear to yield results. Conversations were stuck on Japan's reluctance to open itself to more U.S. agriculture and accept higher tariffs on its key automotive industry. Back home, Akazawa faced criticism.

Akazawa recalled how, after traveling to the United States for the seventh round of negotiations, social media users suggested that he simply pitch a tent on the White House lawn to save money on travel. One of Japan's major daily newspapers ran a column titled, "Can't stop seeing minister's self-abasement at the White House."

At that stage, "that was the kind of heartwarming support I was receiving," Akazawa recounted at a news conference in Tokyo this month.

Like a Real Estate deal
Behind the scenes, conversations were progressing. By early July, plans began to coalesce: Japan would invest around $300 billion in the U.S. economy, in an agreement structured like a real estate deal with the United States and Japan acting as 50-50 partners, according to two of the people briefed on the negotiations.

The question, though, was who would be the "chief investment officer" for such a scheme. Lutnick suggested that it be Trump, the people said.

The memorandum of understanding revealed weeks later contained details that some business leaders and officials called "humiliating," and even the equivalent of "economic slavery."

In exchange for a 15% tariff on its exports, Akazawa agreed that Japan would create a $550 billion fund. Trump would select Japan's investments, and Japan would review and finance the project within 45 business days. Failure to do so could result in higher U.S. tariffs. After Japan recouped its initial money, 90% of the profits would go to the United States.

Akazawa, who declined to be interviewed, has defended the deal and his tactics. Maintaining "decorum," wearing the cap and making repeated trips to the United States were effective in "establishing a trusting and amicable relationship," he said. "I am left with no bad aftertaste," he added.

The trade deal is "not subject to revision," a White House official said in a statement. "We expect all parties to hold up their end of the bargain, which includes increasing market access for American exports and funding a $550 billion investment vehicle to be invested at the President's direction," the official said.

On Sept. 4, Trump signed an executive order lowering tariffs on Japanese exports. A few days later, Ishiba said he would step down as prime minister, citing his administration's clinching of a "win-win" trade deal.

His successor, Takaichi, a hard-line conservative lawmaker who was elected prime minister Tuesday, indicated while campaigning that she saw the deal differently.

She and four other candidates for the presidency of Japan's ruling Liberal Democratic Party were asked during a news program late last month to raise their hands if they believed the trade agreement contained "unequal aspects." Only Takaichi raised hers.

In recent weeks, Takaichi has moderated her language, saying she would not try to reopen the pact with Trump.

Bremmer of Eurasia Group said that under a new administration, Japan should stand its ground with the $550 billion investment pledge. Trump's pattern is to focus on the "headline" of trade deals and care less about how they are carried out, he said.

Makihara, the professor, said he continued to believe in the benefits of Japan's strategy. Tariffs set at 15% aren't immensely punishing, he said.

"I believe the Ishiba Cabinet succeeded in stabilizing relations with the United States," Makihara said. Akazawa, expressing humility, "did a fine job as a supporting actor in the Trump theater," he said. Now, Takaichi, Makihara continued, "will need to focus on building this relationship of trust with President Trump."

Akazawa said at the news conference that Lutnick had reached out to him recently, asking if he would leave his post alongside Ishiba, and whether the deal would be affected.

At the time, Akazawa did not clarify his future political plans. "Japan remains committed to a promise, so whether I am here or not does not change anything," he recounted telling Lutnick.

While the U.S.-Japanese memorandum of understanding is neither a treaty nor legally binding, he said, "It lays out a common understanding, which I believe we have reached."

This article originally appeared in The New York Times.