Trump needs Japan on his side if he wants to make a "trade truce" with China

Donald Trump is in Tokyo to meet Prime Minister Abe and the trade tensions between the United States and Japan will, unsurprisingly, be the main topic of discussion. The Brookings Institution here in Washington DC has summed up the problem well, pointing out that using national security as a front to reduce imports is a fallacious argument. It is certainly hard to see why Americans who buy Toyota cars (many of which are badembled in the United States) should undermine US security.

Leave aside the details and focus on this essential point: Japan is in economic decline. Admittedly, it is the third largest economy in the world, after the United States and China, but in relative weight, it loses its importance – unlike China. The United States therefore has every interest in supporting Japan as a regional counterweight to China. S & # 39; s attacking its key sector, automotive manufacturing, must therefore go against the strategic interests of the United States.

This leads to a broader question. What do we know about the impact of current trade tensions?

Here, there is some modest good news. Trade volumes appear to have recovered somewhat from the slowdown that began about a year ago. If you look at the first quarter of this year, the volume was down. But in March, they began to recover, following the falls of January and February. The Bureau of Economic Policy Analysis of the Netherlands follows the world trade every month and has just reported on this first positive news. Support comes from reports that air cargo has begun to recover slightly, and the forecasting indices of purchasing managers for export orders have begun to show an increase.

Of course, trade volumes may decline, but it appears that companies are changing (and simplifying) their supply chains in order to rely less on imported components and more on domestic components. If this sounds like good news – global supply chains may have become too complicated – be careful. Companies choose to buy products abroad because it is cheaper. Costs for consumers will therefore tend to increase, and there will be an overall loss of wealth at the margin.

Come back to Trump and Japan. The president will be back for the G20 summit meeting in Osaka at the end of June. This will be important because it will remind everyone that if the United States remains the key to global trade negotiations, the rise of China and India will begin to limit its authority. Indian Prime Minister Narendra Modi has been re-elected with a clear majority, his popularity being driven by the country's economic success under his leadership. (The Indian economy is expected to overtake the United Kingdom and France this year.)

The main question will be whether there will be a trade truce (do not expect lasting harmony) between China and the United States. We are currently witnessing the usual speculations before the summit. What is curious about this weekend's meeting between Abe and Trump before the G20 is that Trump is not trying to find a common ground to try to contain China's ambitions. . .

It's odd because the latest data from the US economy suggest that Trump might need allies to fight China. In recent days, signs of a weakening of the US economy have been observed. For example, the National Activity Index of the Federal Reserve of Chicago fell in April, a point chosen by Capital Economics but not by the markets. In addition, Markit's activity indices fell in April, with manufacturing industry having reached its lowest level in 10 years and services, its lowest level in three years. Orders for capital goods were also weak.

I do not think it's useful to grab all the indicators pointing down and say that means the recession is imminent. The fact is simply that The Donald may not have a trading hand as strong as he thinks. As the US economic boom continues, he can say that his trade policy supports him. But how will he react when it weakens, as it will eventually do?