Japan caught between Trump’s deal-making blitz and EU stability

BRUSSELS (CN) — An EU-Japan summit in Tokyo on Wednesday, following the surprise U.S.-Japan trade deal announced Tuesday, has thrust Japan into a global tug-of-war. Tokyo is weighing the speed and unpredictability of Trump-style diplomacy against the EU's slower but stable institutional approach — and appears to be leveraging both.

U.S. President Donald Trump unveiled the deal Tuesday on his Truth Social platform, outlining a plan to impose a 15% tariff on Japanese exports in exchange for $550 billion in Japanese investment in the United States. Japan will also expand access for U.S. automotive, rice and agricultural products. At a White House gathering, Trump called it “the biggest deal ever made” and said countries were “no longer taking advantage of us.”

In contrast, European Commission President Ursula von der Leyen used her Tokyo visit Wednesday to position the EU as offering something more durable. “The essence of our partnership: calm, resilient, and deeply rooted. And this is so valuable in a turbulent world,” she said after visiting the Osaka World Expo.

Japan was America’s fifth-largest trading partner in 2024, with $148 billion in imports, according to the U.S. Census Bureau —making this by far the largest trade agreement of Trump’s presidency. But analysts argue that rather than binding Japan closer to Washington, the deal strengthens Tokyo’s leverage over both sides.

“Japan is starting to hedge and seeing that they will need more in-depth collaboration with the EU and not only with the long-standing, very special and deep relationship with the U.S.,” said Patrik Ström, director of the European Institute of Japanese Studies at the Stockholm School of Economics.

Von der Leyen emphasized that Europe is not competing with the U.S. but complementing Japan’s options. “Together, Europe and Japan represent a fifth of global GDP and a market of 600 million people. We have the scale to shape global rules on trade and tech in line with our values of fairness and openness,” she said.

The EU is Japan’s third-largest trading partner. From 2018 to 2024, total EU-Japan trade grew by 20%, with goods exports up 16% and services exports surging 42%.

Japanese Prime Minister Shigeru Ishiba echoed this sentiment. “A robust and stable Japan-EU relationship is essential in maintaining and strengthening a free and open international order based on the rule of law,” he said.

The contrast between approaches is stark. Trump’s bilateral deals offer immediacy and visibility but carry unpredictability. The EU offers slower, more complex multilateral frameworks that promise long-term stability. Japan, for now, seems to be concluding it needs both.

The overlapping U.S. and EU focus on autos and agriculture creates not only competition for Japanese investment but also opportunities for Tokyo to play both sides.

Trump’s move also adds pressure to Brussels. The administration has set an Aug. 1 deadline to impose tariffs on over 50 trading partners lacking new deals — including the EU, which negotiates trade policy on behalf of all 27 member states.

“I still think that pushes Japan and the European Union closer together because they want to have stability,” said Ström. “The European Union is a market big enough to counterbalance the risks you face with trade restrictions in the U.S.”

Markets responded positively: Japan’s Topix Index jumped 3.2% on Wednesday, nearing an all-time high, while shares of Toyota surged 14% — its biggest single-day gain since 2008. The trade pact also pushed risk-sensitive currencies higher and helped lift global stocks to new records.

Investors appear hopeful that Tokyo’s agreement with Washington could set a precedent, with other countries potentially striking last-minute deals before Trump’s sweeping tariff deadline next week.

The economic stakes are high. Japanese companies have $783.3 billion invested in the U.S., while European firms hold 20.8 trillion yen ($147 billion) in Japanese investment stock. European investment in Japan exceeds American investment, accounting for 41.3% of Japan’s foreign investment stock compared to North America's 26.5%.

Ishiba on Wednesday vowed to remain in power to oversee the new deal with the U.S. despite calls for him to resign after a historic defeat of his governing party. His Liberal Democratic Party and junior coalition partner Komeito lost their majority in Sunday's election in the 248-member upper house, the smaller and less powerful of Japan's two-chamber parliament, shaking his grip on power.

It came after a loss in the more powerful lower house in October, and so his coalition now lacks a majority in both houses of parliament.

Supply chain independence

Despite the fanfare surrounding Trump’s deal, the EU and Japan launched a new "EU-Japan Competitiveness Alliance" Wednesday. Rather than introducing entirely new programs, the initiative organizes and expands existing partnerships under a unified framework aimed at reducing dependence on China.

It builds on the 2019 EU-Japan Economic Partnership Agreement, which delivered gains for European wine and machinery exports. The latest announcement creates an “economic two-plus-two” dialogue involving Japan’s foreign and economy ministers and EU commissioners Maroš Šefčovič and Stéphane Séjourné.

The alliance incorporates ongoing initiatives: negotiations on Japan’s association with Horizon Europe, EU research grants involving Japanese entities, and prior agreements on semiconductors, quantum technology and undersea cable infrastructure. In 2025, the partners will launch a Defense Industry Dialogue on advanced technologies, building on a Security and Defense Partnership signed in 2024.

Although it avoids naming China directly, the alliance tackles concerns over "economic coercion" and "non-market practices" — widely understood to reference Beijing.

Expectations low for Beijing summit

After Tokyo, von der Leyen and European Council President António Costa head to Beijing for meetings with Chinese President Xi Jinping. Officials expect minimal progress. Chinese authorities have already canceled one of the two planned summit days, signaling limited interest.

No joint communiqué is expected — a diplomatic rarity that underscores the growing confrontations between Beijing and the West over trade, Ukraine and state subsidies.

The contrast with Japan is stark. Tokyo extracts competing offers from Western powers to strengthen its strategic hand. Beijing, by contrast, faces mounting pressure with few concessions to offer.

The EU aims to confront China on electric vehicle subsidies and market access, but expectations are low. The abbreviated schedule reflects how much Beijing’s diplomatic flexibility has shrunk.

Japan’s role illustrates the upside of institutional partnerships: while slow, they enable stable alliances and strategic hedging. Middle powers like Japan are learning to turn geopolitical competition into leverage. For Brussels, that means its long game must be more agile if it hopes to keep up with Trump-style transactionalism.

Von der Leyen and Costa’s tour is their first major joint diplomatic mission since Costa took office in December. Trump’s bombshell trade deal shows just how fast-moving — and high-stakes — the new era of great-power economic diplomacy has become.