Trump-Takaichi Summit Preview: Iran War, Tariffs, and China Pressure

Japanese Prime Minister Sanae Takaichi arrives in Washington for a high-stakes summit with U.S. President Donald Trump—just as the Iran war and calls to reopen the Strait of Hormuz collide with Japan’s constitutional limits and energy dependence. On this episode of What Comes Next, Host and TAG Senior Advisor Mira Rapp-Hooper and Brookings Institution’s Mireya Solís examine what Tokyo wants from the meeting: keeping the alliance on track through investment, managing new Section 301 investigations and tariff uncertainty, and navigating the politics of the $550B landmark investment fund. They also discuss China’s coercion campaign, deterrence in the Taiwan Strait, and how Takaichi’s economic-security agenda—defense spending, industrial policy, and fiscal tradeoffs—may evolve.

What Comes Next with Mira Rapp-Hooper is produced by Rivan Dwiastono, executive produced by Lauren Dueck, with editorial input from Prashant Jha. It contains music by Cody Martin via Soundstripe. 

What Comes Next is a production of The Asia Group, and is powered by TAG AI, TAG's geopolitical decision engine for businesses.

Transcript

SPEAKER_02 0:00

There is the summit that you plan for and the summit that you get. I don't think that Tapa Takaichi can uh lightly uh you know assess uh these issues and decide on any such action when um the public is very much against, uh is critical of the Iran war, and Japan also needs to maintain its relations to the Middle East countries because after this conflict, it will still be bringing a lot of oil from that region.

SPEAKER_00 0:30

As President Trump prepares to meet with Prime Minister Takeichi Sennai of Japan, I'm really looking forward to digging into the issues with our next guest. Moreia Solis is the director of the Center for Asia Policy Studies and the Philip Knight Chair of Japan Studies at the Brookings Institution. She's a world-leading expert on Japanese foreign and economic policy, as well as a global expert on global trade and geoeconomics. And I know that Marea is going to bring some terrific insights to bear as we look ahead to this week's summit. Mireia, it's wonderful to see you. Thanks so much for joining us on what comes next. Thank you, Miri. It's a pleasure to be here. Well, I've really been looking forward to our conversation today because this is a very important week, of course, in US-Japan relations, and there's really no one uh I'd rather be talking to on exactly these issues. Prime Minister Takeichi of Japan will soon land here in the United States for a long anticipated summit with President Trump. By all estimation, uh their personal relationship got off to a good start when they first met uh in Tokyo in late October. And since then, of course, Prime Minister Takeichi has posted a historic win in the lower house of Japan's diet, leading the LDP to an unprecedented victory and really, in many ways, saving the party on the back of her own popularity. Um, by all estimation, this should be a good and productive summit. But of course, we've seen a new factor introduced into the equation, which we'll talk about over the course of this conversation, and that is the ongoing war with Iran. What is Prime Minister Takeichi hoping to achieve at the summit as she gets ready to take off from Tokyo?

SPEAKER_02 2:14

Thank you, Mira. Let me put it this way: there is the summit that you plan for, and the summit that you get. And I think we're going to be watching that very closely this week. So a few weeks ago, maybe just a few days ago, there were certain objectives that were very straightforward that the Prime Minister had. One is to make sure that US-Japan relations stay on a positive track, that there is a deepening of their relationship, and that Japan is still considered an indispensable ally of the United States, now seen through the lens of America first. So, Prime Minister Takaichi is very well prepared to talk about massive investments that are coming from Japan to boost manufacturing in the United States. Prime Minister Takaichi also has a very persuasive case to make about helping with the overdependence on critical minerals and therefore reduce that vulnerability vis-a-vis China. And also, Prime Minister Takai has a lot to say about boosting industrial defense base, uh, you know, expanding Japan's defense capabilities to help with deterrence. Then there's also, of course, the question of leaders' chemistry. And as you said, they had a very good first meeting, but at that time, Prime Minister Takaii was uh weak. People didn't know if she was going to stay long in her position, and now she has delivered this stunning electoral victory. President Trump likes winners, and therefore the idea is that this is the chance to really connect, to cement that leader-to-leader uh meeting. And of course, uh Prime Minister Takaichi wanted to come now in March, ahead of uh President Trump meeting with uh President Xi. That meeting is now looking a little more uncertain, but the idea was to convey to him that it's important to be very, very uh resolute when it comes to deterrence in uh the Taiwan Strait and the uh First Thailand uh chain. But you know, the world keeps spinning very, very fast. And now uh over the weekend, President Trump issued a uh post saying that he wants countries, including Japan, to send uh support and that now uh to reopen the uh Strait of Hormuz and this Sateam effort. And this, I think, has completely changed the nature and the test by which he will be evaluated coming this Thursday.

SPEAKER_00 4:24

No doubt about it, Maria, and that's exactly where I'd love to take this conversation next. The war with Iran uh presents some real tensions for our friends in Japan. Um, on the one hand, Japan, like many partners in East Asia, is very dependent on Middle Eastern oil and gas for its energy security. Luckily, Japan has considerable reserves, and Prime Minister Takichi has already demonstrated through her messaging and her release of some of those reserves that um she's gonna try to handle um, you know, potential energy perturbations steadily. Uh but exactly as you say, this idea from President Trump of organizing a coalition to open the streets of Hormuz has really thrown Japanese friends for a loop. And that is, of course, um amongst other reasons, the fact that Japan has uh self-imposed, you know, longstanding prohibition um on the use of force, particularly out of area. Um, and public approval in Japan does not genuinely generally support a lot of Japanese military or military-like activity for reasons that aren't closely connected to what is perceived to be Japan's self-defense. Um, one could imagine that with these huge margins and her popularity, the prime minister has a little bit of room to take some risk, but she almost certainly wants to save that legroom for her own economic agenda, um, amongst many other things. How do you think she will handle this issue of an Iran request in and following this meeting, particularly given the importance she has placed in her own public profile on this relationship with President Trump?

SPEAKER_02 6:08

Yes, you know, I see this as uh, you know, the Iran conflict as a crisis at two levels on how Prime Minister Takaichi is thinking about a uh way forward. First is as you started your question, Mira, the energy security piece. And this has been perennially uh Japan's uh you know biggest exposure. And it's nothing new. If you think about the 1970s when Japan came up with this concept of comprehensive security, it had precisely to do with that vulnerability to uh the access to oil and the uh volatility in the Middle East. And it has been very difficult for Japan to really uh win itself out and reduce that import dependence. And because of what happened with the Fukushima nuclear accident, it is only very recently that some of these nuclear power plants are being restarted. So the vulnerabilities are there. And I think we are we should also be mindful of, you know, when I look at the past six months, I think that we have witnessed the exploitation of what I would refer to as the mega choke points. First it was the critical minerals with China, and now it's the oil supplies. And that is all landing in the desk of Takaichi and all world leaders. And how is Japan going to address this when most of its oil, you know, comes from the Middle East and then goes through that Strait of Hormuz? Um, so the energy piece, the energy security piece is important. Then, you know, the request from Trump and the constitutional uh constraints that she has to maneuver a response. And, you know, the uh Japanese government so far has refrained from calling the situation in the Hormuz Strait as a survival-threatening situation that is needed for Japan to invoke collective self-defense. Uh also, um, it has also refrained from uh you know assessing the legality of the US strikes. Uh, and that would be part of the conversation for that approval to take place. Trump's request, you know, uh puts that uh question now front and center. And uh there's also past president of Japan being uh supportive in minesweeping operations. Japan has a lot of capabilities for that, but that never takes place in an active um uh combat theater. So, you know, I don't expect Prime Minister Takaichi um is going to come to Washington and give no, a no answer to President Trump because he would, you know, take this as a proof of disloyalty, a proof that Japan cannot be proactive as it has promised to. But I don't think that Takaichi can uh lightly, you know, assess uh these issues and decide on any such action when the public is very much against, uh, is critical of the Iran war, and Japan also needs to maintain its relations to the Middle East countries because after this conflict, it will still be bringing a lot of oil from that region. So I think that there is a search for an answer. What that answer might be, I'm going to, I think this is the most creative genius that is required for this meeting. There are some examples from the past. It could be we hear some language about uh independent Japan action to try to, you know, maybe not deploy directly in the Strait of Hormuz, but in the vicinity to try to provide some intelligence that what it did in the past, uh frame these as how you restart commercial uh uh flows of oil. But I I don't have the formula yet. I wish I did. And I think that everyone in the country is racking their brains, trying to come up with a formula that can also be seen as you know, respectful of Japan's legal doctrine, not getting Japan exposed to potential uh, you know, uh conflict, uh involvement in a conflict, and also uh with a very impatient president who once a yes yesterday. So I think it's a very difficult situation.

SPEAKER_00 9:57

I completely agree, Maria. I think that was really elegantly put. Um, there are just so many points of tension that bear down on Japan and Prime Minister Takeichi in this issue set, exactly as you say. And of course, in addition to the public likely not being incredibly supportive of such an operation, Prime Minister Takeichi has articulated a desire to put forward a very robust defense and national security policy. And she's looking to keep public opinion on her side, certainly through the course of this year, while she looks to hit 2% of GDP spending on defense early, raise her sites higher, revise her national security documents, and hopefully come to President Trump by the end of the year or early next with a higher target still. But to this point, if she were seen to be undertaking an operation that hadn't been deemed to be survival-threatening to Japan, um, to not have wrestled with the legality or to otherwise put Japanese forces in harm's way, that could really have a dent on this agenda. So it's not just a question about Japan saying yes to the United States. It's about how this conflict puts pressure on Japan to be the ally we have been asking Japan to be at a critical moment. Um so I don't envy the Conte advisors who are trying to come up with this formula, but I think the the way you've dug into this is as creative as anything. My expectation is also um that she won't say no, but also that we won't get an answer this week and we'll get something of a promise to study the question hard and do something without being super committal. Does that sound right to you? I think so. Yeah. Yeah. We'll see. Um one other factor that has come up, uh, again, just in the last few weeks, anticipated by our colleagues in Japan, but again, not terribly welcome. Um, the announcement uh back on the trade front that the United States is undertaking a new suite of 301 investigations and has included Japan as one of the parties is subject to one of these investigations. This, of course, follows the Supreme Court's decision to strike down AIPA as a basis for President Trump's Liberation Day tariffs. Uh, the administration that imposed tariffs under Section 122, uh, but our listeners know, and you know better than any of us, that Section 122 tariffs can only stay in place for 150 days. So the purpose of these 301 announcements is to have new tariffs ready under 302 Section 301 when those 122 tariffs expire. Uh Japanese officials said that the announcement of Japan as subject to these new investigations was not a surprise. Um, of course, the Japanese government has concluded a framework uh agreement with the Trump administration that sets Japan's overall tariff level at 15%. Um, but nonetheless, a new investigation um at this particular time as Takeichi heads to Washington is not the most savory thing uh for the Prime Minister to be wrestling with. So say a little bit more, if you would, about how you think Prime Minister Takeichi will handle the 301 piece of things. And in particular, just um give us a sense of how the Japanese public and Japanese elites are seeing this moving target with the United States on tariffs, given how assiduously uh the government of Japan worked to conclude that initial agreement and how determined they have been to keep it in place.

SPEAKER_02 13:30

Thank you, Mira. Very well put. And I think that, you know, there is uh pragmatism in what we hear from Minister Akazawa when the announcements came of the US TR about the 301s. Uh there are two investigations now. One is on excess industrial capacity, and the other one is in not curving imports that utilize forced labor. And as you said, everybody understands what the game plan is here, and that is that the United States is trying to rebuild its leverage because when the Supreme Court acted, it basically took away Trump's favorite tariffs, and now they're giving him a second best, but the idea is that he can use this again to make sure that countries do not renege under trade commitments and uh continue to open up to the United States. So I think that's the spirit of what we hear, the Japanese government signaling that, you know, uh they just want to make sure that whatever happens with these investigations, they don't leave Japan worse off than before. Because it's an interesting situation, right? That Japan faithfully is implementing its investment pledges, but there's now doubts about whether it's the US who will uh stay put with the commitments that were agreed or not. These doubts came from the get-go with the 122, because the idea is that they will be stacked on the MFN tariffs and that could actually go above the 15% tariff that Japan had negotiated. But also because, you know, once you open this investigation, who knows where this will go, right? And who knows what the findings will be, and who knows what President Trump decides to do at a later point now that he has these tools of leverage. So Japan is signaling, okay, we are fulfilling our side of the deal. We expect you to do the same even as you rebuild your tariff toolkit. Um, but certainly it's not good news for Japan that this is happening. The timing is not great either on the eve of the uh Prime Minister arriving. And uh I understand that Prime Minister Minister Akazawa is saying, well, Japan is not singled out, it's a bunch of countries. But there's a Japan-specific segment in the industrial capacity, overcapacity uh notice from UST Army that I find a bit strange and should be of concern depending on how this investigation pans out. The argument here is the USDI is saying that trade surpluses are evidence of industrial overcapacity. Now, the problem they have with Japan, they note themselves, is that Japan has a global uh deficit in trade goods, but as a surplus vis-a-vis the United States. So that does how does that square with the argument that there is an economy that's structurally uh biased in favor of over uh overproduction? Uh then they uh uh single out the automobile industry, but that's not one that is receiving a lot of subsidies from governments because the idea usually has been that there is overcapacity because of artificial support. So yeah, and then they mentioned some firms in Japan that never die. And it's true, there are zombie firms in Japan, but uh there are many of these. I should I think that this has been mostly uh a welfare uh policy. Uh it's not uh competitive, it's not efficient. But many of these uh zombie firms are actually small, medium-sized enterprises that do not export. So, how they'll make their case, uh, you know, it remains to be seen. It cannot be good that there's a Japanese-specific paragraph. My last point here, Mira, is that Japan and the United States used to be a team in dealing with industrial overcapacity and subsidies. And, you know, the Bayern administration had an important initiative on you know non-use of forced labor in supply chains, a task force, a US Japan task force. Now, with these investigations, Japan is seen as a problem, not as a part of the solution. And that cannot be good.

SPEAKER_00 17:23

There is also, I mean, you just tease this out so nicely, Maria, in your comment about the Japan-specific paragraphs, but there's something about the 301, and you'll forgive the sort of characterization of this, as opposed to the Liberation Day tariffs or the 122s, that's more personal. It requires an investigation. The Japanese are well familiar with that process, but it suggests that it given a government government, a given economy is doing something wrong. Um, and exactly as you say, it's building a case about overcapacity that seems pretty hard to substantiate. Um, and obviously many of our allies are used to 301 or 232 investigations, particularly in sensitive sectors. Um, they understand um, you know, to the best of their ability how to manage them politically. But it is different for Prime Minister Takichi to message at home that Japan has become subject to new or different tariffs on the basis of a specific investigation and a finding, as opposed to tariffs that were applied across the board and wound up Japan with an agreed tariff rate uh that looks like a lot of other US allies. Um, so again, uh something to sort of see how it's reported out of the meetings and something I know we'll both be watching in the months ahead.

SPEAKER_02 18:43

Very much so. I think also Japan has PTSD from 301, right? Because it's always been seen as the exercise of a unilateral trade power. And as you said, you're labeled an unfair trader. That's the basis of the investigation.

SPEAKER_00 18:56

Yeah, no doubt. And it's hard, especially with a designation like um overcapacity, not to have that sound like the way we would talk about China, right? Which is the opposite of how our Japanese allies would like to be characterized in the US discourse. I want to um kind of dig into another piece of the US-Japan trade agreement and ask you a little bit more about where it stands. And that is the landmark investment fund that Minister Akazawa negotiated when he was negotiating um with the Trump team to invest$550 billion into the United States. Uh, this is a structure that we saw similar echoes of in other agreements. In the case of the ROK agreement, um, that structure still uh has not been approved by the National Assembly, has become a source of um some consternation uh for President Trump. But Japanese friends have been very enthusiastic about demonstrating to the United States through this fund that Japanese investment can be great for the US and can support us in key strategic sectors. Um, and we know headed into this visit that, you know, from the perspective of the Japanese government, a lot of the key deliverables will come in the form of several project announcements that we're expecting to see. Now, um, you know, it's also been my impression that the negotiations headed into this piece of the visit haven't been the easiest or the um the investment process. There have been a lot of proposals that have come from the US side. Only some of them are feasible for Japanese companies to undertake. But would love your sense of the state of play of where this investment fund stands and to what degree it is going to meet the Japanese government's hopes and expectations of being uh the proof point that Japanese investment is good for the United States. And to what degree it's going to meet the Trump administration's desire to see Japan pour investment into key sectors?

SPEAKER_02 21:02

Yeah, uh great questions. Um, just a few thoughts. One is that it really is uh palpable how much the Japanese government has worked to ensure that it can deliver on the investment fund. And they have now placed themselves ahead of everyone else. The United States negotiated similar investment funds with other counterparts, uh, with South Korea, with Taiwan, and so forth. But it's Japan who is ahead in the actual implementation stage, or at least the announcement of the specific projects. And with this, I think the argument has been that investment has always been this transformative element to the US Japan relation that when there has been friction, investment has been a way to rebalance things and you know put things in a more stable uh path that generates mutual benefits. But of course, this is a very different type of investment. In the past, this was done primarily through private sector decisions. Now there's been the request under pressure for government funds to be allocated to this strategic investment fund. And when the projects are identified, the Japanese government transfers that fund to the Commerce Department, investment accelerator. So the role of governments in all of this is completely new. The fact that you have a bi-national committee to provide input, but it's a US investment committee who makes recommendations and eventually it's President Trump who makes the decisions. We've never seen this before. And my point has always been, Mira, when I think of this, is that yes, Japan resolved the trade negotiations through these formula, but then opened myriad investigations because every single project becomes, in a way, a negotiation. So because Japan has been adamant that these projects must be mutually beneficial and commercially viable. And the guarantee that they've used for that is actually the Japan Bank for International Cooperation has, you know, those requirements when it allocates, when it makes this kind of funding movements. And, you know, there's going to be different expectations. Another element is that the US only promised assistance or support in kind, in addition to expedited regulatory approvals. I see the Commerce Department fact sheet on the first three projects, that's the amount of information I have. And I don't see, I see the funds Japan is committing. I don't see what is the US in-kind contribution. That's one, I think, element that for me still remains very much of a black box. I also don't know how exactly how Japanese companies are going to connect with this. They're mostly going to be suppliers and there will be off-take arrangement agreements. But the actual running of the project, now we have some idea of who will be the main operator. But how much influence will the US government continue to have in the running of these projects? If they're essential for national security, does that mean that they cannot be allowed to fail? Japan has a long checkered history with national projects that were used for national economic security in the past. And then we have these new phenomena of, you know, so many projects in three and a half years that have to be funded when we don't know exactly how much government interference will there be. And this is a characteristic of the Trump industrial policy. They like to keep their fingers in the dough, so to speak, in how they run. And, you know, if some of these projects are not doing well, does this become then a sort of friction between the two sides? This is, I think, a story that we're going to go be coming back to time and time again because it's a big, big undertaking with a lot of questions.

SPEAKER_00 24:49

I think that's a great laydown. I would also note that, you know, not that much time has passed since the agreement was inked, and now these two leaders are meeting for the summit. So while there's no doubt that the Japanese government has sprinted to bring these projects forward, I think we're both aware that everybody would like to see them be a little bit more crystallized than they are right now. And there's always a risk when you announce something quickly so that the leaders can bless it, that it gets harder down the road when the rubber really meets the road and you have to talk about implementation. So you've given our listeners quite a lot to think about in terms of what we might expect to see in this space going forward. Before we move off this topic to our next Mira, I do just want to ask, you mentioned the fact of US government in-kind support. What might you have expected to see in these first three project announcements by way of in-kind government support that isn't there? Can you just give us an example of the type of support that you think we might see in the future?

SPEAKER_02 25:50

I actually don't have a very specific set of examples on this, Mira, but uh, you know, what the MOU had highlighted is, you know, land leases, access to uh energy uh sources. So, you know, depending on the specific of the project, and I don't know, for example, what is needed for a synthetic diamond plant to run in that specific uh Georgia location. Uh, that's what I would like to see. Uh, and it then you you have to go down to the specific level of the individual project, their location, and what might be required. But it's interesting to me, the point I was just making is that these are supposed to be joint projects, and the commerce department fact sheet only uh elucidates what Japan is doing, but we don't know necessarily what uh the US government or what national, uh state or local governments are going to do. And that I think is part of, I'm I'm sure those conversations are ongoing from for us, the watching community, it's not clear uh how uh uh this will be actually uh balanced between the two sides.

SPEAKER_00 26:53

It's a great point. So I want to pull on a thread that you laid out for us earlier in the conversation and come back to it, and that is the role of China in this summit between uh President Trump and Prime Minister Takeichi. Uh, you mentioned, of course, um that with President Trump's planned trip to Beijing, which now looks like it could be postponed, although, although still seems like it will happen before too long, uh, Prime Minister Takeichi is likely to say something to President Trump that kind of rallies his support, his resolve to stand strong on the first island chain. And in particular, to not give too much ground on Taiwan, uh, which many analysts are worried he could do on the basis of past statements about Taiwan and about Xi Jinping, and also the fact that we know that Xi Jinping is clearly running a campaign that seeks to um reduce or delay US support for Taiwan as part of his trade negotiations with President Trump. Um so presumably uh Prime Minister Takeichi will frame whatever this statement is positively, something to the effect of we need you, we need your peace through strength. You can only be strong if you stand in favor of Taiwan. But talk to us a little bit about what the PRC's ongoing coercion for Japan of Japan means in the summit and how Takeeichi enters it. Of course, um, you know, we rewind the tape uh to early November, just days after the last time Prime Minister Takeichi and President Trump met. Uh, Prime Minister Takeichi made some statements before the diet in which she identified the fact that a Chinese invasion of Taiwan could be a survival-threatening situation for Japan, which could justify uh the use of force in collective self-defense. Uh, this was a statement that those of us who watch Japan closely know is just an accurate characterization of Japan's perspective and views, but a frank and more candid statement than uh other prime ministers had made in the past. And since then, Japan has become subject of PRC coercion along a number of different dimensions, basically using the PRC playbook, um, you know, reducing student travel, reducing tourism, uh, a set of dual-use export control restrictions that do not appear to be fully implemented yet, but seem to hold at risk a number of important key Japanese industries. Um, and perhaps the most surprising thing about this PRC coercion campaign is the fact that the United States has said almost nothing about it publicly. Um, although US officials do claim to be back channeling to PRC officials behind the scenes. Across this affair, Prime Minister Takichi has been incredibly resolved. She has not flinched, she has not backed off her statements and seems to feel that she can stand strong for longer. But any typical Japanese Prime Minister facing any typical US president from either party would have expected more US support. It seems unlikely that given that she knows how important a meeting with Xi Jinping is for Trump, that she will ask him to make China's coercion of Japan a central issue and his talks with Xi. I wonder how you think she will raise it, however, and how she's gonna continue to play this issue. Because the role of the United States in all this, of course, is not just as an ally or as a broker with the PRC, but ultimately the role we would often play in multilateral institutions. You know, typically we would be working through the G7 and other organizations to try to create more space and back China off the plate in a campaign like this one. And that role has not been present the last few months.

SPEAKER_02 30:43

Yeah. Yeah, no, uh, very good question, Miriam. The short answer, and then I'll expand on it a bit, is that I think that the way to uh whisper on Trump's year on this is to make it about the US interest. Um, Trump is not going to extend himself just for the sake of, you know, uh the pain that uh uh the Prime Minister and Japan are experiencing because of this all-out pressure campaign from China. But if Japanese, if US industry eventually is affected by the economic measures that China now is building uh against Japan, then I think that might be seen as something that the United States and Trump should be watching and should not be looking at it, should be looking at it with concern and should actually be articulating that concern to Xi. What I mean by this, and I'll walk myself, I'll start at the end and then walk myself to the beginning, is that China now has issued, as you mentioned, there's been a number of measures about student exchanges and seafood uh imports, and those are important. But I think what gives us even more pause is these new export controls on dual use goods. The first action came in January, and you know, China has a list of like 800 such goods that include many rare herds. And the question is like with China, everything that China does is that it puts out the measure and keeps everybody guessing as to how strictly, uh stringently will it be applied or not. Uh and that um uncertainty is already part of what they're aiming for and the ability to you know uh adjust as they uh as it suits their purposes. Then they follow up with another uh action that this one is a real, I think, a significant escalation. In February, they released a new entity list with that, you know, 20 uh Japanese companies in one group, 20 Japanese companies in another. In the first group, those uh companies are, according to China, are directly helping Japan's remilitarization, and therefore there's a ban on the export of those dual-use goods. And the other 20 are on a watch list, and more pain may be coming. These companies are not small players, they're important companies that operate globally. And I think that what Japan will do, and this is something that they, an argument that they've been using, not just based on these actions, but previous actions by China when it comes to critical minerals and rare earths, that this is an international problem. Because Japan may be the first stop, and you know, Japanese companies may be feeling that pain, but these companies supply American producers, other companies, and those really important supply chains and those investments that now the Japan the American government is expecting are going to be affected if this economic harm is not addressed. So I think that that's I that's what I think they might uh um uh think about to make sure that President Trump can see a direct interest at stake for the United States in how China is, you know, applying pressure on supply chains. Now, um, in general, I would just say that, you know, President Trump has claimed credit for Takaichi victory. I think that uh, you know, the Chinese pressure helped Takaichi electorally. I agree. Because you know, she stood firm and the public appreciated that, but also she was restrained. She did not uh embark on a tit-for-tat retaliation with China. I think that that approach of firmness but restraint was appreciated by the public. It also helped her explain. You mentioned Mira, her agenda of you know, boosting growth, boosting industrial defense expenditure, boosting defense capabilities. All of these brings more urgent to the Japanese public in light of uh Chinese uh pressure campaign. So I think, yes, there's going to be a lot of pain. Many companies in Japan have begun to signal that re-earth's availability is tightening, and they were saying this ahead of the formal controls, and we're still in the dark as to how much uh uh they will be squeezed. But politically, and in terms of you know, uh uh endorsing the shifts that Prime Minister Takaichi is has been advocating, that I think becomes an added argument for uh staying the course. I think that's incredibly well said.

SPEAKER_00 35:02

Um and and it leads right into the final question I want to ask you about today, Maria, although uh not a simple one. And that is the question of how we should um kind of set our expectations around the future of Takeichi's economic um and fiscal policy. She, you know, was obviously elected with a mandate to inject dynamism into the Japanese economy. Uh, part of the reason support for the LDP had been flaking over the course of prior years, of course, had to do with kind of internal party corruption scandals. Um, but more than that, there seemed to be a sense amongst the voting public that wages were not keeping up with prices, um, that the economy sort of needed more dynamism that wasn't being addressed, and that the lack of those things was increasingly falling on the LDP. And I think um, you know, I learned from your analysis around the time of the upper house elections, that was part of the reason why we saw so many populist parties gain voting share uh back in July. So there's no question that this is top of mind for Takeichi. She herself comes from a background as a bit of an economic fire brand. She was well known for supporting um deficit spending, although that hasn't been as common of a call since she's been in office. Um, but she has uh, you know, been in favor of suspending a consumption tax um for a period of two years. Um, this was another promise that was made alongside and to sort of win support of some of these more populist parties. Uh she also, however, as you've already alluded to, wants to really spur Japanese domestic industry, a lot of priority being placed on domestic defense industry, on Japan's role in the tech supply chain, um, and uh a lot of talk about kind of more expansionary fiscal policy. How does she square all of these competing priorities and a mandate that clearly has the economy at its core with this persona that she has created for herself as a bit of a firebrand who has now fully captured the LDP?

SPEAKER_02 37:13

Yeah. Thank you, Mirab. Again, excellent question. And uh if I try to, you know, explain how I see Takaichi approaching these uh issues that really go to the core of her program, what she wants to accomplish as a prime minister. My sense is that she sees this uh world, we're in the middle of, you know, uh, I don't even know what the right uh adjective is, but certainly it's a moment of great uh instability, volatility, and uh challenges. And I think she would make the case that the state must step up. This is not a moment for state retrenchment, uh, this is not a moment for uh very slim-down budgets in her mind, but that the state must step up both because Japan's security and growth demand more directed strategic uh government action. And she actually, I think, sees a very, you know, she was a minister of economic security before becoming prime minister. So I think that in her mind, the security field and economic growth are actually pretty much joined at the hip. These are not separate spheres. And importantly, she has one government tool that she thinks is the key to uh accomplishing her goals, and that is the public purse. That is spending. And as you mentioned, she's not that conventional, and even though her party has traditionally pushed for very disciplined budgets, she's been you know elbowing her way to a rethinking about how should government spending be deployed and what should be the limits uh around it. So the the question, of course, is that you know Japan has a lot of competing priorities and already a very stretched fiscal position. So you have an aging population, and therefore you need a lot of support for pensions, healthcare. You have a population that feels keenly, and this is the appeal of the populist parties too, that the living uh standards have sort of been frozen, that they're not keeping up, and inflation is eating at their earnings. So they want some release in terms of their tax burden. You also have a Japan with you know incredibly uh uh um difficult neighbors and a deteriorating security environment, and your uh security guaranteor expects you to step up, and you want to step up on defense spending. And then, of course, Japan very much understands that the concept is actually Japan's, and I think is very elegant, a strategic indispensability. And the way you do that is by building these frontier uh tech technologies that require the government to be partnering with the private sector. All of that is money, and you have, of course, the world's largest public debt to GDP. So, how is Takaichi finding its way here? Well, I think that you know her comments, her talking points are that Japan has been sort of trapped by this austerity mindset, and that the problem is that there isn't enough domestic investment, and that actually you should not think of economic security as a cost but as an opportunity. And if you can then bring these in these 17 crisis management projects, semiconductors, biotech, pharmaceuticals, drones, quantum, the list is huge. But if you can build these public-private partnerships, then you create a positive growth cycle that allows you to stay uh uh fiscally responsible. Which is also the message that she wants to send to the private sector to avoid volatility on the exchange rate and uh uh sentiment in the stock market. So she has a lot of audiences that she's trying to address to the public, the private sector that wants to partake in industrial projects, the financial sector, and the world watching, you know, what happens to the Japanese economic experiment. Now, I would say that you know she wants to change the way budgets are compiled and then have multi-year budgets for these industrial policy projects. Uh, this is a huge experiment, Mira. And I hope that that positive growth cycle is at the end of the road, uh, achievable. But every industrial policy pledge has started with this promise. So it's a bold uh program. It's very different from what other prime ministers have promised. The times may call for it, but at the end of the day, there are huge constraints that she has. And uh, you know, uh these are frontier technologies. By definition, we don't know uh what will actually pan out.

SPEAKER_00 41:48

Maria Solis, incredibly rich analysis over the course of this wonderful conversation. You've given us so much to watch for in this upcoming summit and the weeks and months ahead. Thank you so much for being here. My pleasure, Mia. Thank you. As I reflect on my conversation with Mireia, I'm struck by the fact that Japan is an incredibly steady ally with a new, incredibly popular and politically powerful prime minister who is nonetheless facing a number of dilemmas in this moment. Whether it is how to respond to requests from the United States around Iran and the Straits of Hormuz, or how to handle a new 301 investigation on the backs of Liberation Day and 122 tariffs, Prime Minister Takeichi has positioned the United States relationship as critical to everything Japan does. Yet in some of these areas, her sustained popularity is necessary to achieve her own ambitious economic agenda. So how she manages this challenging but critically important relationship with President Trump is going to mean a lot for how much freedom of action she continues to have to really deliver on those ambitions. Today's episode was produced by Refund Dewey As to Know, an executive produced by Lauren Dewick with editorial input from Pashant Job. It contains music by Cody Martin via Soundstrike. What comes next is a production of the Asia Group and is powered by Tag AI, Tag's geopolitical decision engine for business. We'll see you on the next episode.