"We Need To Prepare Umbrellas For A Rainy Day": Japan Gears Up For Trade War

While so far Trump's trade focus was fallen mostly on Nafta countries, and to a lesser extent China, one country that is taking precautionary steps is the one which recently suffered a major loss when Trump signed an executive order to exit the TPP, effectively killing the trade deal: Japan. The TPP, which took years to negotiate among 12 countries, has often been described as being, at its core, a deal between the United States and Japan, the world's largest and third-largest economies respectively. Abe has touted TPP as an engine of economic reform and a counterweight to a rising China but said on Thursday it was possible Tokyo and Washington could hold bilateral free trade talks

According to Reuters, Japan is "preparing for all possible contingencies regarding trade talks with the United States", the top government spokesman said on Friday, after U.S. President Donald Trump ditched the Trans-Pacific Partnership free trade deal this week. PM Shinzo Abe is preparing for a visit Washington next month, and in a sequel of what Trump is expected to unveil with Theresa May today, an official in Trump's administration said Trump would seek quick progress toward a bilateral trade agreement with Japan in place of the broader Asia-Pacific deal.

"It is true that we are preparing to be able to respond to any possible situation," Chief Cabinet Secretary Yoshihide Suga told a news conference. He refrained from commenting on U.S. trade policy until it becomes clear.

Trying to keep the tone cordial and not to attract too much attention to Japan's mounting concerns it will be called out next, he added that "the alliance and the economy between Japan and the U.S. is very important, so we would like to have talks with various levels with the U.S. (about) how we can develop."

Meanwhile, Japanese officials said Abe's government should still try to convince Trump of the benefits of the TPP and multilateral free trade deals, while adding that they were not ruling out bilateral trade talks with the United States.

"We still stick to our best scenario (in pursuit of TPP), but that does not mean that we're inflexible," Masahiko Shibayama, an adviser to Abe, told Reuters.

"We need to prepare umbrellas for a rainy day. It's too early to decide what kind to umbrellas to bring, though."

Abe has touted TPP as an engine of economic reform and a counterweight to a rising China but said on Thursday it was possible Tokyo and Washington could hold bilateral free trade talks.

"Japan will continue to stress to the U.S. the importance of the TPP but it is not totally unfeasible for talks on EPA (Economic Partnership Agreement) and FTA (Free Trade Agreement)" with the United States, Abe told parliament after being asked about trade talks between the two nations.

Trump, who signed an executive order declaring he would seek to pull the US out of multilateral agreements, reiterated on Thursday he would strike numerous bilateral deals, as opposed to multilateral accords, such as the TPP. He has also taken aim at Toyota auto production in Mexico, warning it, too, would face tariffs if it pursued growth in Mexico instead of US for plants that build cars meant for the US.

And the punchline: Japanese officials were cautious about any Free Trade Agreement (FTA) between Japan and the United States, as it could encourage Trump to step up pressure on Tokyo while providing few benefits for Japan's economy, they said. Trump has threatened a "border tax" on imports into the United States and has said Japan has "unfair" barriers to foreign auto imports. Japanese officials pointed out that there are no tariffs on foreign car imports into Japan and maintain there are no discriminatory non-tariff barriers, either.

"We’ll calmly explain the fact that Japanese carmakers are investing in America and create a lot of jobs there," Shibayama said.

Of course, using "calmly" to preface any discussion with Trump is rather futile, and only invites the opposite response, especially on twitter.

Furthermore, Japan suggested that while it sought concessions from the US, it would preserve some trade protectsions of its own: Japan's Kyodo news agency said Abe also suggested Japan would advocate retaining some form of tariffs on rice and four other key agricultural products in any trade negotiations with the United States.

"We will thoroughly protect what we should protect...I want to carry out bilateral negotiations properly, based on the thinking that agriculture is the foundation of this country," it quoted him as saying.

Suga also said Japan would continue to monitor closely how the relationship between the United States and Mexico affects Japanese companies. On Thursday, the White House floated the idea of imposing a 20 percent tax on goods from Mexico to pay for a wall at the southern U.S. border, sending the peso plummeting and deepening the crisis between the two neighbors.

Japanese manufacturers, including major automakers, operate numerous factories in Mexico.

As a reminder, the last time the US and Japan were engaged in a vicious trade war, the final outcome were two infamous mushroom clouds.