"Trump 2.0" (8) Norihiko Ishiguro, President of the Japan External Trade Organization (JETRO), Ma...

Thank you, Imai-san, for the introduction. I am Ishiguro, Chairman of JETRO. My office was nearby, so I often came here for lunch and books, but this is my first time in this press conference room. I will explain using the handout titled 'Shaking International Order: Challenges and Responses for Japanese Companies'. I will cover three points: the fragmentation and uncertainty in the global economy, Japan's medium- to long-term challenges, and how to deal with the US now. Before Trump, US-China trade was already declining. US investment in China fell 62.5% over three years, and China's investment in the US fell 36%. US dependence on Chinese goods remains high, especially consumer goods, which is why tariffs were recently reduced to 30%. North American supply chains are deeply integrated; auto parts cross borders 8-9 times. Tariff announcements change daily, making it hard for companies to plan. Japan's exports to the US are mainly cars and construction machinery. The WTO predicts US-China trade could drop 77%. Services trade is also affected. Uncertainty is at historic highs, and US tariff rates are at 120-year highs. Japan's fundamental problem is population decline: from 126 million in 2020 to 87 million in 2070 and 63 million in 2100. My 2-year-old grandchild might live to see that. Japan's international competitiveness ranking fell from 24th in 2003 to 38th in 2024. For 30 years, Japan had 'endurance management'—not raising wages, suppressing consumption, leading to deflation. Now we need 'offensive management'. To grow, Japan must engage with the world, attract foreign vitality, and earn abroad. Per capita GDP has stagnated. The real exchange rate shows Japan's weakness. We must invest in people and equipment, and create a virtuous cycle of growth.

When you look at the real effective exchange rate, the Japanese yen has been steadily weakening. This is not just a result of trade but reflects a decline in Japan's fundamental economic strength. It's a sad reality. As a result, domestic industries are suffering. Japanese companies do not actually want a weak yen; surveys show they prefer a rate around 120-124 yen to the dollar. The weak yen now directly drives up domestic costs rather than boosting the economy. Over the past 30 years, companies have shifted investment overseas, so fewer industries remain in Japan except for automobiles. Many now prefer to set up operations abroad near markets rather than export from Japan. The overall trade volume has been declining. While expanding overseas is not bad, the model of making in Japan and selling abroad is no longer working well. A major headache is the digital services deficit: most cloud services are American (Microsoft Azure, AWS, Google), and Japanese ICT providers often run their services on top of these, leading to a large outflow of payments to the U.S. On the positive side, travel services are booming due to inbound tourism. Foreign direct investment into Japan is also increasing, with India becoming a top destination for Japanese investment. Before the Trump administration, there were signs of mild inflation and wage growth, especially among large firms, but now there are concerns that Trump's tariff policies may derail this, especially for small and medium enterprises. However, inward investment is showing signs of growth, such as TSMC's facility in Kumamoto, which has already attracted about 30 related companies. Japan's social stability and safety are being reevaluated amid geopolitical risks, which may be a reason for TSMC's choice. Now, regarding the impact of U.S. tariffs on Japanese supply chains: there is a risk of reduced exports to the U.S., and China's overcapacity may be diverted to ASEAN and Europe, leading to intensified competition. We held an emergency webinar that attracted nearly 10,000 participants, and a survey of 7,589 responses showed that 82.5% of companies expect to be affected by reciprocal tariffs, and 73% by tariffs on China. The complexity of tariff rules is a major issue, as components cross borders multiple times, making it hard to determine origin. Even customs authorities in the U.S. are struggling. Companies are simulating price pass-through and cost rationalization. About 40% of firms plan to pass on costs to customers, which is encouraging compared to the past tendency to rationalize. Others are looking at cost reduction or market diversification. Regarding supply chain changes, some companies with existing U.S. plants are expanding production, but new greenfield investments take 3-4 years, so few are making immediate decisions. Our immediate response is to recognize that the U.S. is no longer the champion of free trade. We must collect and disseminate accurate tariff information. We have 76 overseas and 50 domestic offices conducting hearings to understand impacts and convey them to the government. For the medium to long term, I see three priorities: first, continue to send the message that Japan-U.S. cooperation strengthens U.S. industry and supply chains; second, enhance Japan's indispensability by creating high-value industries that the world needs; third, as Japan's population declines, we must engage with the world—Japan cannot become isolationist. We need to strengthen ties with like-minded countries and explore new frontiers like India, the Middle East, and Africa. JETRO is already active: we provide information via webinars, have a U.S. tariff consultation desk that has received over 1,700 inquiries, and conduct grassroots activities in U.S. states to highlight Japanese contributions to local economies. Japan has been the top foreign direct investor in the U.S. for five consecutive years, creating about 1 million jobs, including over 500,000 in manufacturing, especially in the Midwest. We also work on innovation ecosystems, matching startups with accelerators like Techstars, which have opened offices in Tokyo and Osaka. We are also facilitating talent acquisition through job fairs and attracting research talent. In summary, Japan must remain a trading nation, enhance its value proposition, and deepen global partnerships.

We hold job fairs abroad, for example in India and Vietnam, helping foreign students get jobs at Japanese companies. On page 47, regarding frontier markets: we opened an office in Ukraine last year but it's inactive until a ceasefire. We also want to promote investment in Africa. We sent missions to Mongolia and to Southeast Europe—Serbia and Bulgaria—as Japanese companies now focus on that region. Finally, JETRO's three priorities: providing information to seize business opportunities, strengthening connectivity in a divided world, and leveraging overseas vitality to overcome stagnation. That concludes my presentation; I'll take questions.

On M&A: It's definitely a valid strategy to buy time. Japanese companies are already thinking about it and will likely increase it. The corporate culture has shifted from in-house everything to embracing open innovation and M&A. On reviving manufacturing: I'm skeptical. It's not impossible, but consider Boeing—it depends on Japanese-made parts with micron-level precision that only Japanese companies can make. Commodity items like plastic household goods could return to the US, but high-value manufacturing that relies on Japanese craftsmanship cannot easily move. Japan has strengths there. Some manufacturing will return, but high-quality sectors probably won't.

Yes. First: Companies are in a state of uncertainty, running simulations but delaying decisions. The environment changes daily. I believe the 90-day pause has a rationale: considering US midterm elections, Trump will need to stabilize markets by early next year. I expect tariffs to converge to about 30%, like with China. Second: Japan excels in semiconductor manufacturing equipment and materials—these are Japan's pride and don't need to relocate. General machinery like Fanuc is also very competitive. Many small and medium-sized companies hold top global market shares in niche areas. The challenge is to increase such firms. For example, I've met local SMEs with technologies that are irreplaceable.

I think the Japanese government is making that argument. But Trump cares about white blue-collar workers—not digital trade. The message doesn't reach them. Officials understand, but Trump focuses on his base. That's the difficulty.

Trump is sensitive to market reactions, especially bond yields, which forced the 90-day pause. He bluffs but eventually bends, as with China's 30%. The market is pushing him to moderate. Your suggestion of emphasizing those points is valid, but it's up to the negotiators. The administration knows the risks and wants to claim victory while stabilizing.

On wages: Even with export pressures, we must not become too cautious. Lead assemblers should be aggressive and not force unreasonable cost-cutting on suppliers. Creating room for wage increases in SMEs is crucial. On Trump's next moves: He will likely push for tax cuts for corporations and the wealthy, fulfilling another campaign promise. Tariffs were for his base. He'll tout investment announcements and then seek tax cuts to stimulate the economy. But it's very uncertain.

I agree, this is an epochal period. The US has abandoned free trade for America First. Japan must become more self-reliant, not just in trade but also in security. The alliance is crumbling. Japan must rethink its stance. It's worrying.