Asian Trade Deals Are a Sideshow. The Real Drama Is Still to Come.

Treasury Secretary Scott Bessent shakes hands with Japanese Prime Minister Shigeru Ishiba after completing trade negotiations in Tokyo last week. (Shuji Kajiyama/AP Photo/Bloomberg)

About the author: William Pesek is a longtime Asia opinion writer, based in Tokyo. He is a former columnist for Barron’s and Bloomberg and the author of Japanization: What the World Can Learn from Japan’s Lost Decades*.* He is the head of Yardeni Research’s Tokyo Bureau.

As President Donald Trump celebrates the “massive” trade deal he scored with Japan this week, Asia’s leaders could be excused for being a bit perplexed. The deal has U.S. importers paying a 15% tax on goods from Japan, while the tariff rate was cut for Japanese auto makers. All those months of harsh rhetoric and market chaos…for this?

Granted, the president’s pact with Tokyo isn’t nothing. But the 15% tariff Trump agreed to is a far cry from his earlier threats of 24-35%. Japan won’t make real concessions in agriculture, as Trump recently demanded. And there is little in the agreement for Japan’s semiconductor and pharmaceuticals industries to fret about.

Japanese auto makers won’t face the 25% auto tariff Trump imposed on the rest of the world; shares of Toyota, Honda, and Nissan jumped on the news. Trump claims Japan will in turn “open” its market to U.S. automobiles. But that is just semantics—the market was already open. And good luck collecting on Japan’s pledge to invest $550 billion in the U.S.

Tokyo must be wondering why Team Trump didn’t hold out for more. The reason: Trump’s trade war isn’t actually concerned with Asia’s No. 2 economy. It is about the region’s biggest economy, China—and is increasingly so as Trump’s trade war proves decidedly unpopular.

In recent days, the Trump administration has clearly pivoted back toward a “grand bargain” trade deal with Xi Jinping’s Communist Party. At this point, the other negotiations are table stakes. This week’s ho-hum agreements with Japan, the Philippines, and Indonesia smack of cleaning up loose ends before next week’s main event in Stockholm, where China and U.S. trade envoys are set to meet.

The leaders of the rest of Asia must feel better knowing this drama is becoming less and less about them than it is about China.

They are learning to let Trump have his “win” and his splashy news conferences. For India, Malaysia, Singapore, South Korea, Thailand, and the others up next, the key is to secure as low a tariff as possible and hope the next U.S. government makes capitalism great again. As Goldman Sachs’ economists recently argued, 15% seems to be the new U.S. baseline tariff rate anyway. It is probably the floor.

The White House’s recent pivot suggests it views a trade deal with China to be the maker of Trump’s legacy. A favorable deal might eclipse all the scandal, chaos, and economic pain inflicted by Trump’s leadership, in hopes of convincing his base it was all worth it.

But Xi might not play ball like Commerce Secretary Lutnick and Treasury Secretary Scott Bessent appear to think he will. Xi might not have the latitude to accept a sizable U.S. trade deal of the sort the Trump administration is envisioning; he isn’t nearly as omnipotent or popular in China as Trump believes him to be.

China’s economy has suffered for the past 12 years under Xi’s rule. He can’t blame anyone else for deflation, a disastrous property crisis, high youth unemployment, local governments burdened by many trillions of dollars of debt, a negative demographic trajectory that is giving International Monetary Fund economists agita, or a currency that still isn’t fully convertible. China’s excitement over DeepSeek upending the artificial intelligence world and BYD driving past Tesla in revenue is real. But until Xi can shore up the economic foundations beneath it all, wages, productivity, and innovation will keep hitting headwinds.

Yet, if Xi doesn’t give Trump an opportunity to declare some kind of trade war victory, there is no telling how Trump might react. Could he slap China with 200% tariffs? Could he hit Tokyo up again for a new, new, new deal? If Trump is having a really bad day, what is to keep him from tearing up one or all of his new trade deals and demanding redos? That is all the more reason for Asian governments to slow-walk talks with the administration.

Here, it is worth considering what economists call “opportunity cost,” or the public benefits foregone by prioritizing one option over others. If Trump’s trade war weren’t mostly performative, the U.S. could indeed work with a constellation of fast-growing Asian economies to create a tariff-free zone that encircles China. One existed back in 2017—before Trump 1.0 exited the Trans-Pacific Partnership.

The global economy that has emerged in the eight years since then cares very little about the kinds of bilateral relationships Trump is prioritizing. As Trump insists on negotiations and forging new trade relationships, Asia has little choice but to play along. It knows that China is Trump’s real prize.

That “win” could prove much harder for him to pull off.

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