The Peter Zeihan Podcast Series - Trump Trade Talks: Japan Gets a Deal || Peter Zeihan

Episode Date: August 12, 2025

Japan is one of the few countries who has been willing to step into the batter's box and take whatever Trump throws at them. This time at the plate, they were tossed a 15% tariff on Japanese goods (with some big caveats).Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/trump-trade-talks-japan-gets-a-deal

Hey, all, Peter Zion here, continuing our series on the New Deal's that the Trump administration has announced for trade with our major training partners. Today we're going to tackle Japan. The Japanese situation is very similar to the European situation and that it looks like the Trump administration, Donald Trump personally came up with a few numbers, walked into the room, said, I went this, this, and this and this. And the Japanese nodded their head and smiled and say, sure. The headline figure for tariffs going for goods coming from Japan and the United States is now 15%. And unlike in Europe where there's not a lot of back and forth and manufactured goods to the degree that industrial substitution might happen, with Japan, there's a fair amount. Japan is an industrialized economy that doesn't have a lot of consumption because of their demographic bomb. And so they export basic goods, intermediate goods, processed goods, and finished goods to the United States. So there's a lot of room for things to move around if that ends up being the final number for the long term.

But that's probably not going to be the final number for the long term. The most interesting piece of the trade deal, as it's currently been announced, is that on things like cars and semiconductors, those are going to be pushed off to another day. So even the Trump administration is saying that this is the beginning of the negotiations and at the end. Here's the problem. Japan doesn't make a whole lot of semiconductors, and the United States doesn't make a huge number of semiconductors. But both of us absolutely dominate certain pieces of the support. supply chain. So the United States makes the silicon dioxide that basically goes into all of the world's semiconductors. And we also do almost all of the design. The Japanese do some design, but they absolutely dominate the photo mask, which is, for lack of a better phrase,

really fancy sunscreen. So when you're throwing the lasers at the chips, you can etch them to different depths to achieve different things. These steps are not replicated in either country to the same degree that they would need to be if you wanted to have a pure, national semiconductor supply chain system. So the Trump administration, by pushing this off, is leaving unresolved the question of what the United States' semiconductor policy is going to be. Are we only interested in the last step? Fabrication, which is what the Taiwanese do. Is that what we want? And we still want to bring in all the inputs that we need from the rest of the world? Or do we want a completely indigenous semiconductor system? The first one is a $100 billion question

that would take 10 to 15 years. The second one is a $5 trillion question that would take 20 to 40 years. And the Trump administration to this point hasn't figured out how it wants to approach that because that's a huge task no matter which version of the question it's going to be. And so things with Japan on that regard

are being put off. Something similar has happened with drug manufacturing because the Japanese aren't the ones that make the really cheap drugs. They make the more advanced drugs. And if you want to do that at home, you need a whole support chain going up to it. Okay.

that's kind of piece one. Piece two is a promise of investment. Unlike the Europeans where everything is done at the nation's state level, and so negotiating with the European Union is a little loosey-goosey. Japan is a sovereign nation. When you negotiate with Tokyo, you're negotiating with Tokyo. And Japan is a country that over the course of the last 50 years has realized that they have a poor system for raw material production and processing.

So they've built a number of state entities to basically compensate, for that. You basically throw state money at entities who are kind of relieved from the normal laws of supply and demand and go out into the world and make investments that under normal circumstances Americans wouldn't make in order to source lithium or oil or whatever it happens to be. According to the terms of the current deal, those institutions will now start investing in American infrastructure in order to produce products in the United States. And 90% of the profits from those institutions will go to American entities. So two problems with that. Number one, these Japanese financial institutions that are government linked, they usually go into raw commodity

production and processing. That's not what Donald Trump said they're going to do. He says they're going to go into high-end manufacturing. So already you're talking about a significant shift in their mission and outside of their normal realm of expertise. The second problem is the idea that the Japanese will provide all of the money but take hardly any of the profit. That's a stretch. And as soon as Trump made these announcements, the Japanese is like, that's not what we agreed to at all. So, unfortunately, in a similar matter to what we have going on with the European situation, this is the start of talks. This is the Trump declaration of what they want. Here we are when this all started back on April 2. We're now, see, May, June, July, we're now three and a half months later.

and we're only now getting the initial declaration of what Donald Trump actually wants to see. Now, this is progress. But if you're talking about the refabrication of financial entities at the government level of Japan as the starting point for whatever this later deal is going to be, you're still talking about projects as are going to be realized over the course of a decade or more, not the sort of thing that is going to have any impact on things like the trade deficit on any meaningful time frame. We are, once again, at the beginning of this process. We are nowhere near the end.