US President Donald Trump (on the left) and Japanese Prime Minister Shigeru Ishiba.
President Donald Trump has reignited global trade tensions by unveiling a series of letters on July 7, threatening to impose hefty tariffs on major trading partners, including Japan.
The move comes as a 90-day pause on Trump's Reciprocal Tariff Plan, initially announced on April 2, is set to expire this Wednesday. While baseline tariffs of 10% on all imports remain in place, the letters outline much steeper levies unless new trade agreements are reached.
Tariffs on Japan
A letter addressed to Prime Minister Shigeru Ishiba confirms a blanket 25% tariff on all Japanese exports to the US, effective on August 1. This is in addition to existing sector-specific tariffs already applied to automobiles, auto parts, steel, and aluminum.
In the letter, Trump described the US trade deficit with Japan as a "major threat" to the American economy and national security. He warned that any retaliatory measures would be met with proportional escalation: "Whatever the number you choose to raise them by will be added onto the 25% that we charge," he wrote.
Ishiba stated on Tuesday that the announcement was "truly regrettable," but reiterated Tokyo's commitment to ongoing dialogue and the protection of national interests.
Japanese trade officials have made several trips to Washington in recent months to seek exemptions through negotiations, but those efforts have so far failed to produce results.
What Trump Wants
Since his first term, Trump has claimed that countries exploit America's vast consumer market, often citing Japan as a prime example.
The president argues that Japan's dominant industries, such as automakers and electronics, benefit from access to the American marketplace, while American agricultural and manufactured goods face steep barriers.
By rolling out aggressive tariffs, Washington aims to insulate domestic producers from foreign competition and compel Japan to open its market to more US goods.
Is Trump Right?
Although a bilateral trade imbalance exists, it only tells part of the story. The US consistently enjoys a trade surplus in services with Japan. Moreover, much of the goods deficit arises from structural economic differences and consumer preferences, rather than Japan's protectionist barriers.
For one thing, the US naturally imports more products than other countries as a high-consumption economy. Japanese automakers, in turn, have tailored their vehicles to suit American tastes, often manufacturing them directly in the US.
Japan has also been the largest source of foreign direct investment in the US for five consecutive years since 2019. Corporations like Toyota, SoftBank, and Fujifilm have poured billions into their American operations in recent years, creating tens of thousands of new jobs.
These sustained investments help mitigate some of the negative effects typically associated with a trade deficit.
Even on rice, Trump's criticism often misses the mark. Under World Trade Organization rules, Japan imports up to 770,000 tons of tariff-free rice annually through a minimum access system. In fiscal 2024, it imported nearly the full amount, with US rice making up 45% of those imports, far more than any other country.
Economic and Political Fallout
The US is Japan's largest export destination. If implemented, 25% tariffs would significantly increase the cost of Japanese goods in the American market, reducing their competitive edge and squeezing profit margins.
Analysts project that Trump's proposed policy could decrease Japan's real GDP by as much as 1.8%, disrupt global supply chains, and negatively impact corporate earnings across various sectors.
The political stakes are equally high. With inflation still weighing on households, the Japanese government remains indecisive on whether to cut or scrap the consumption tax, an issue looming large ahead of a critical Upper House election on July 20.
Having already lost its majority in the last Lower House election, Ishiba and his ruling Liberal Democratic Party are walking a tightrope as tariff D-day nears.
Lessons from Abe
Despite Trump's accusations of Japan being "spoiled," Tokyo has shown a willingness to compromise under the right circumstances.
In 2019, for instance, then-Prime Minister Shinzo Abe signed a limited bilateral trade agreement with Trump, lowering tariffs on American beef, pork, and wheat in exchange for a freeze on higher auto tariffs.
Abe also championed multilateral trade pacts like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which emphasizes rules-based trade and market reciprocity as an alternative to coercive deal-making.
Some of Trump's current demands, particularly wider access to Japan's agricultural market, could have been achieved through the original Trans-Pacific Partnership, from which Trump withdrew in 2017 during his first term.
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- Trump's Tariffs: Japan's Biggest Challenge — and Opportunity
- Japan-US Trade Talks: Start by Expanding Beyond Trade
Author: Kenji Yoshida
