Japan is not the UK of the East

The Impact of Tariffs on Japan’s Economy

By Takuya Nishimura, APP Senior Fellow, Former Editorial Writer for The Hokkaido Shimbun

The views expressed by the author are his own and are not associated with The Hokkaido Shimbun
You can find his blog, J Update here.
May 12, 2025. Special to Asia Policy Point

As U.S. President Donald Trump enters bilateral tariff negotiations with several countries, his tariffs have already begun to negatively affect Japan’s economy. Some business sectors had already realized profit and growth losses from the slowdown of Japan’s economy. The Shigeru Ishiba administration believes that, as a close ally of the United States, it can negotiate some exceptions to the punishing tariffs. This is far from certain.
 
The Bank of Japan has revised its estimate of the growth of Japan’s economy in FY2025. “Japan’s economic growth is likely to moderate, as trade and other policies in each jurisdiction [other countries] lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors,” says the bank’s Outlook for Economic Activity and Prices in April. The outlook identifies Japan’s evolving trade situation and developments in import prices as risks to economic activity.
 
Toyota Motor Corporation published its FY2025 consolidated financial results on May 8. According to its estimation, net income from April 2025 to March 2026 will decline by 3.1 trillion yen ($21 billion), or 34.9 percent. Toyota has already taken into account declines of 180 billion yen in April and May 2025 that have resulted from Trump’s tariff policy, as well as an annual 745 billion yen reduction caused by the fluctuation of foreign exchange rates.
 
Nippon Steel estimates its net income between April 2025 and March 2026 will be 200 billion yen, a 42.9 percent decline from the previous fiscal year. “The U.S. administration’s tariff policy is becoming increasingly uncertain day by day and is beginning to have a major impact on the global economy. As a result, the trend toward favoring domestic production is accelerating, and it is expected to have a significant impact on the domestic and overseas steel industry, including an indirect impact,” according to Nippon Steel’s consolidated financial results for FY2024.
 
The Trump administration imposed a 25 percent tariff on foreign steel and aluminum in March. In April, it imposed another 25 percent tariff on imported cars. The Shigeru Ishiba administration quickly sought to negotiate reductions in these tariffs. Japan’s top negotiator, Ryosei Akazawa, announced that the talks were focused on the expansion of bilateral trade, non-tariff barriers, and economic security.
 
While Japan has been spending time trying to set the agenda, the United Kingdom reached a deal with the U.S. to reduce tariffs on UK products. The tariff on 100,000 UK cars will be reduced from 27.5 percent to 10 percent, and steel and aluminum imports will be tariff-free. On Monday, May 12, the U.S. agreed with China to cut the 145 percent tariff on Chinese goods to 30 percent for 90 days.
 
The Trump administration clearly is seeking deals with countries, regardless of whether they are allies or foes. Japan was stunned by the indifference of Trump administration to their alliance and shared values of democracy and free markets, as seen in the U.S. intent to exclude the new tariffs on automobiles, steel, and aluminum from negotiations with Japan.
 
Trump’s tariffs caused the Japanese yen to appreciate against the U.S. dollar. The appreciation will itself raise the cost of Japan’s goods sold in the U.S., although the precise change in the exchange rate has varied. The yen rose from 155 yen per dollar at the time of Trump’s inauguration in January to a high of 140 yen in April. As of the close of business Monday, May 12, in the U.S., the rate was approximately 148 yen to the dollar.
 
Despite pressure from the Trump Administration to ease monetary policy, the Federal Open Market Committee of the Federal Reserve Board made no change to the current federal funds rate of 4¼ to 4½ percent at its May meeting, which concluded on May 7.  As long as U.S. monetary policy does not reduce the interest gap between the U.S. and Japan, there should be little impact on the yen. 
 
However, the announcement of even a 90-day deal between the U.S. and China devalued the yen. At the close of the market on Friday, the Japanese yen was at approximately 145 yen to the dollar. At the U.S. close on Monday, it was approximately 148 yen to the dollar. 
 
A cheap yen hikes the price of imported goods in Japan. According to the Monthly Labour Survey in March by the Ministry of Health, Labour and Welfare, the real wage of workers in Japan has dropped for three consecutive months. Workers’ wages have still not caught up with price inflation.
 
To minimize the negative impact of Trump’s tariffs in the coming Upper House election, the Ishiba administration plans to deliver an economic stimulus package. However, the leaders of the Liberal Democratic Party are reluctant to include a consumption tax cut or a cash distribution in the party’s campaign platform.
 
If Japan falls behind other countries in finishing bilateral tariff deals, the Ishiba administration will be unable to reverse the downward trend in its approval rating. The latest poll of NHK showed a 33 percent approval rating, down 2 percentage points from the previous month. The Trump administration's tough line toward Japan is having a negative effect on Japanese politics.

South Korea and Trump Tariffs

South Korea Needs to Take the Long Road to Free Trade
First Published May 12, 2025, KEIA Blog
By  Daniel Sneider, Stanford and APP Member

The Donald Trump administration is pursuing a flurry of activities designed to convey the impression that a wave of trade deals is underway. The announcement of an agreement framework with the United Kingdom was followed by talks between Secretary of the Treasury Scott Bessent and Chinese counterparts.

The United States and China agreed to a ninety-day pause in their tariff war, setting rates of 30 percent by the United States and 10 percent by China while negotiations take place. Talks of de-escalating the high-stakes trade war are clearly aimed at dampening the severe reactions of financial and stock markets.

South Korean officials have seized upon this activity as a sign that bilateral talks can yield positive results, particularly the removal of the 25 percent tariffs imposed on autos, steel, and electronics.

Han Duck-soo, the former prime minister who stepped down to pursue an independent bid for president, expressed hope that he could negotiate a “win-win” deal with President Trump.

“There is always some room for cooperation and good communication among policymakers of the United States and Korea. So I feel rather good about expecting some acceptable final results from that,” Han said at a meeting with foreign correspondents in Seoul on May 7. “We will do our best making win-win solutions.”

But there are grounds for deep skepticism about the prospects for success in these and other talks.

Economist and former New York Times columnist Paul Krugman dismissed reports of the U.S.-UK deal and other deals as “smoke and mirrors, an attempt to persuade the gullible that Trump’s tariffs are actually working.” Krugman argues that these talks are “a response to a problem that didn’t exist” and that trade deficits do not reflect unfair foreign trade practices or high tariffs but rather the huge flows of capital into the United States, which reflects the perception of the United States as an attractive place to invest.

Japan’s experience of two rounds of negotiations with Bessent and other senior U.S. officials is instructive. Japanese negotiators emerged from the talks mystified as to what the Trump administration actually wanted. The U.S. side refused to discuss the biggest tariff rate—the 25 percent tax placed on autos, auto parts, steel, and aluminum—and insisted that these were global tariffs not subject to exemptions.

The Japanese government is in no rush to reach an agreement, though it does not want to be seen as backing away from talks. Prime Minister Shigeru Ishiba faces considerable criticism from the opposition for engaging in “tribute diplomacy.” With elections for Japan’s upper house of the National Diet coming in July, the ruling party does not want to concede to what are seen as unreasonable demands from the United States.

“It’s not better just because it’s faster,” Ishiba told reporters following the bilateral talks. “For us, while properly asserting our national interests, it’s not good to reach an early conclusion by sacrificing such interests.”

South Korea faces many of the same circumstances. The first round of talks in Washington was similarly inconclusive, and the key issues for Korea—tariffs on auto, auto parts, steel and aluminum—are also beyond discussion for now. This is unlikely to change even after a new presidential administration is voted into office on June 3.

Secretary of Commerce Howard Lutnick, commenting after the U.S.-UK announcement, acknowledged this reality. “You’ve got to spend an enormous amount of time with Japan, South Korea,” he told reporters. “These are not going to be fast deals.”

Like Japan, Korea’s strategy has been to seek concessions to induce the removal of the tariffs. Offers to cooperate on shipbuilding and energy production have been put on the table. But trade policy experts doubt those gestures will ultimately succeed.

“Many will still try to use this pause period to finalize something in exchange for a moderation to their initial tariff ‘sentence,’” says Michael Beeman, former assistant U.S. trade representative for Japan, Korea and APEC in the Office of the U.S. Trade Representative (USTR). “There will be value in negotiating since, as I’ve been saying, the threats are a tactic in part — but not in whole. Because at the end of the day, he still wants a new, higher rate on the world,” Beeman, author of Walking Out: America’s New Trade Policy in the Asia-Pacific and Beyond, told this writer.

The Japanese prime minister explicitly rejected a new, higher rate as a possible outcome. “We are seeking a complete elimination,” he said on Sunday. “It is not a matter of being satisfied with a certain percentage.”

When engaging the Trump administration, Korea and Japan need to “be patient” and take a longer view, Stanford University Professor Gi-Wook Shin told a recent seminar at Stanford’s Walter H. Shorenstein Asia-Pacific Research Center.

Short-term efforts to appease the Trump administration are unavoidable, but they should be paired with efforts to bolster free trade outside. U.S. discussions of reforming the World Trade Organization (WTO) offer one pathway, though admittedly a complex and drawn-out process. More likely are discussions to expand and strengthen existing regional trade regimes in the Indo-Pacific, including through partnerships with the European Union.

According to the Financial Times, plans to forge a strategic partnership between the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have been revived in response to the trade wars unleashed by the Trump administration. The CPTPP already brings together twelve nations, including Canada, Japan, Mexico, Vietnam, Australia, and the United Kingdom, and covers rules for investment, digital trade, and other goods trade. According to the report, support for linking the two arrangements has come from New Zealand, Canada, Singapore, and, quietly, Japan. The proposal could be discussed at the upcoming meeting of trade ministers at the Asia-Pacific Economic Cooperation (APEC) later this month in South Korea.

“Any efforts to strengthen and widen the CPTPP as a rules-based international trade system are useful,” says a former senior Japanese Foreign Ministry official who led the effort to embrace CPTPP without U.S. participation during the first Trump administration. But the former official adds that he doubts the Ishiba government “has the guts” to do something similar.

The Regional Comprehensive Economic Partnership (RCEP), a looser regional trade grouping with fifteen Asia-Pacific member countries—including China—could also gain a larger role. China has presented itself as a guardian of free trade against the Trump administration’s protectionism, reaching out to the European Union, South Korea, Japan, and Southeast Asia as part of a charm offensive. Discussions of a free trade agreement between China, South Korea, and Japan were held recently, partly in response to Trump’s tariffs.

Chinese officials have also expressed an interest in joining the CPTPP. But there is considerable opposition to admitting China out of fear it would dilute the organization’s established standards, including clear restrictions on favoring state-owned enterprises.

“If you put China into the CPTPP, you basically blow it up,” Dr. Elizabeth Economy, a widely respected expert on China at Stanford’s Hoover Institution, told the Stanford seminar. “I don’t think the Japanese have any interest in bringing China into the CPTPP.”

South Korea’s participation in CPTPP faces much less opposition and could offer a means to balance the pressure from the Trump administration. The pathway to membership, however, will need to involve the strengthening of Korea-Japan relations.

But the Korean government may be reluctant to take that step, suggests Shin. “I don’t think Korea would be interested in joining a multilateral entity that didn’t include the U.S.,” he said.

Such calculations in both Seoul and Tokyo could shift, however, if attempts to bargain with Washington falter and the global economy slips into a recession. In any case, it makes sense for South Korea to look beyond bargaining with Trump and join the construction of a free trade zone in the world economy.

Monday Asia Policy Events, May 12, 2025

CONVERSATION WITH FORMER USTRS. 5/12, 10:00-11:30am (EDT), HYBRID. Sponsor: CSIS. Speakers: Michael Froman, Former USTR (2013-2017); Ronald Kirk, Former USTR (2009-2013); Susan Schwab, Former USTR (2006-2009); Robert Portman, Former USTR (2005-2006); Charlene Barshefsky, Former USTR (1997-2001); Mickey Kantor, Former USTR (1993-1996); Carla A. Hills, Former USTR (1989-1993); William Alan Reinsch, Senior Advisor and Scholl Chair Emeritus. 

PUSHING BACK AND MOVING FORWARD: A CONVERSATION WITH SEN. CHRIS VAN HOLLEN. 5/12, 10:30-11:30am (EDT), HYBRID. Sponsors: Center for American Progress. Speaker: Chris Van Hollen, Senator, Democratic Party, Maryland.  

SHIFTING TRADE DYNAMICS: TRUMP’S TRADE POLICY & ITS IMPACT. 5/12, 12:30pm (EDT), IN PERSON ONLY. Sponsor: Japan Society. Speaker: Michael Beeman, Former Assistant U.S. Trade Representative for Japan, Korea, and APEC. Membership.

THE INDIA-PAKISTAN CONFLICT. 5/12, 1:00-2:00pm (EDT), VIRTUAL. Sponsor: Columbia University Institute of Global Politics. Speakers: Shamila Chaudhary, fmr. National Security Council Director, Pakistan and Afghanistan; Jon Finer, fmr. Assistant to the President, Principal Deputy National Security Advisor, IGP Carnegie Distinguished Fellow, Columbia SIPA; Rajan Menon, Emeritus Anne and Bernard Spitzer Chair in Political Science, City College of New York, Adjunct Senior Research Scholar, Columbia SIPA; Mike Pompeo, 70th Secretary of State; IGP Carnegie Distinguished Fellow, Columbia SIPA; Rumela Sen, Lecturer and Arnold A. Saltzman Institute of War and Peace Studies Affiliated Faculty Member, Columbia SIPA, South Asia Institute Affiliated Faculty Member, Columbia University.

STRATEGIC TRENDS 2025: A TRANS-ATLANTIC LOOK AHEAD. 5/12, 2:30–3:30pm (EDT), VIRTUAL. Sponsor: CSIS Intelligence, National Security, and Technology Program; CSIS Defense and Security Program. Speakers: Emily Harding, Vice President, CSIS Defense and Security Department; Daniel Möckli, Head of Think Tank, Center for Security Studies (ETH Zürich); Gorana Grgić, Senior Researcher, Swiss and Euro-Atlantic Security Team, CSS; Névine Schepers, Team Head and Senior Researcher, Swiss and Euro-Atlantic Security Team, CSS; Myriam Dunn Cavelty, Deputy for Research and Teaching, CSS. 

TRUMP AND THE COURTS: WILL OUR GUARDRAILS HOLD? 5/12, 3:00–3:45pm (EDT), VIRTUAL. Sponsor: Carnegie Endowment for International Peace. Speakers: Mariano-Florentino (Tino) Cuéllar, President, Carnegie Endowment for International Peace; Jack Goldsmith, Learned Hand Professor of Law, Harvard Law School; Aaron David Miller, Senior Fellow, American Statecraft Program. 

REVOKING THE CITIZENSHIP OF JEWS IN VICHY FRANCE. 5/12, 7:00pm (EDT), IN PERSON ONLY. Sponsor: US Holocaust Memorial Museum. Speaker: Dr. Claire Zalc, Research Director, Centre National de la Recherche Scientifique (CNRS, France), Professor, École des Hautes études en Sciences Sociales (EHESS, France). 

BOOK TALK: THE TIME OF LAUGHTER: COMEDY AND THE MEDIA CULTURES OF JAPAN. 5/12, 9:00pm (EDT) 5/13, 10:00am (JST), HYBRID. Sponsor: Yokosuka Council on Asia-Pacific Studies (YCAPS). Speaker: author Dr. David Humphrey, Associate Professor, Japanese, Global Studies, Michigan State University. PURCHASE BOOK: https://amzn.to/3RAF4jt

The Fragile Alliance

A Fundamental Gap Opens in Tariff Negotiations


By Takuya Nishimura, APP Senior Fellow, Former Editorial Writer for The Hokkaido Shimbun. The views expressed by the author are his own and are not associated with The Hokkaido Shimbun
You can find his blog, J Update here.
May 5, 2025. Special to Asia Policy Point

As tariff talks between the United States and Japan are getting into details, a fundamental difference over preconditions has emerged that put the talks in danger. While the U.S. says that cars, steel, and aluminum tariffs are nonnegotiable, Japan insists on negotiating tariffs on every product from Japan. This disagreement places unusual pressure on both governments due to internal political calendars.

Following the first meeting on April 16, Japan’s top negotiator, Ryosei Akazawa, held a second meeting with his counterparts, U.S. Secretary of Treasury Scott Bessent, Secretary of Commerce Howard Lutnick and U.S. Trade Representative Jamieson Greer, in Washington, DC on May 1.

After the meeting, Akazawa announced that both sides had discussed expanding trade between the two countries, reducing non-tariff barriers, and cooperating on economic security. Japan asked the U.S. to reconsider its tariff policy on all products.

According to some news reports, Japan explained in the meeting how it would increase imports of corn and soybeans from the U.S. and ease regulations that generally prevent the importation of foreign-made cars. Bessent said that he hoped to reach a consensus with Japan across a range of key bilateral issues soon.

However, even before Akazawa returned to Japan, Japanese news media reported that the U.S. would exclude cars, steel, and aluminum from the negotiations. The Trump administration had already activated 25 percent tariffs on steel and aluminum in March and imposed a 25 percent duty on automobiles in early April.

The “reciprocal” tariffs that Trump announced in April are different from the 25 percent tariffs. The administration set a 10 percent baseline tariff on all imports into the U.S. and separate tariffs for each country. The baseline tariff took effect on April 5, but Trump set 90-day moratorium on the additional tariffs; the moratorium will expire on July 9. The tariffs on cars, steel, and aluminum are in a third category.

The rate of reciprocal tariffs on Japanese imports, the sum of the 10 percent baseline tariff and an additional 14 percent tariff, is 24 percent. The U.S. team told Akazawa that they would negotiate only the additional 14 percent tariff. In addition, the U.S. would not negotiate the 10 percent baseline with any country.

As soon as he returned to Japan, Akazawa reported to Prime Minister Shigeru Ishiba about the results of the meeting. Akazawa announced Japan’s position that tariffs on all goods should be negotiated. “We cannot reach an agreement without those items (cars, steel, and aluminum),” said Akazawa to the reporters. He added that he did not have parameters for an agreement with the U.S.

Notwithstanding the differences between the two governments, officials on both sides have continued to negotiate after Akazawa’s second visit. A third meeting at the ministerial level is anticipated in mid-May. Both sides understand the importance of reaching a deal before the 90-day moratorium expires.

The schedule is closely aligned with the domestic politics of each side. Ishiba does not want the negotiations to have a negative impact on elections to the Upper House in July. The leaders in Liberal Democratic Party (LDP) are worried about protests by farmers against any compromise on imports of agricultural products from the U.S. LDP leaders are aware of the importance of protecting the national interest in the tariff negotiations.

Opposition leaders are putting pressure on Ishiba not to make easy concessions. “It is important to keep a motivation for an early agreement, but Japan should not open its hand too early to be taken advantage of by the U.S.,” said the leader of the Constitutional Democratic Party of Japan, Yoshihiko Noda.

Concerns are growing about a slowdown in the Japanese economy. In a monetary policy meeting on the same day as the Akazawa-Bessent meeting, the Bank of Japan reduced its projection of Japan’s economic growth in FY2025 by more than 50 percent from the original 1.1 percent in January to 0.5 percent. Japan has no time to waste on tariff negotiations.

Trump has indicated that a deal with Japan is a priority that will set a level for negotiations with other countries. Along with progress in negotiations with Japan, Secretary of State Marco Rubio said that tariff talks with China would start soon. As approval ratings for President Trump are declining, Trump may believe that a negotiated deal with Japan will be a signal achievement in the MAGA agenda.

There is an expectation in Japan that the two sides may be able to make more progress when Trump and Ishiba are together at the G7 Summit in Canada on May 15 to 17. Ishiba spoke by telephone with Canadian Prime Minister Mark Carney, who had just been elected prime minister, to discuss the impact of Trump’s tariffs on the world economy and the multilateral trade framework. Although Ishiba’s G7 schedule does not yet include a side meeting with Trump, an agreement, even if it is only partial, between the leaders in June is the best hope for both Japan and the U.S.

Monday Asia Policy Events, May 5, 2025

FORK IN THE ROAD: THE STARK CHOICES ON US IRAN POLICY.  5/5, 11:00am-12:30pm (EDT), HYBRID. Sponsor: CATO. Speakers: Danny Citrinowicz, Research Fellow, Institute for National Security Studies, Tel Aviv University; Gregory Brew, Senior Analyst, Iran and Energy, Eurasia Group; Negar Mortazavi; Senior Fellow, Center for International Policy; Jon Hoffman, Research Fellow, Cato. 

KOREAN WAVE AND GLOBAL KOREA. 5/5, 1:00-2:30pm, VIRTUAL. Speaker: Areum Jeong, Assistant Professor of Korean Studies, Arizona State University; Moderator: Jungwon Kim, King Sejong Associate Professor of Korean Studies, EALAC, Columbia University.

STRENGTHENING ARTICLE IV: NUCLEAR FACILITY RESILIENCE IN TIMES OF CRISIS. 5/5, 1:00-2:00pm (EDT), HYBRID. Sponsor: Nuclear Threat Initiative. Speakers: Dr. Rabia Akhtar, Research Fellow, Belfer Center, Harvard Kennedy School; Darya Dolzikova, Senior Research Fellow, Royal United Services Institute; Ambassador Matteo Fachinotti, Resident Representative to the IAEA, Permanent Representative to the CTBTO PrepCom, Permanent Mission of Switzerland to the OSCE, the United Nations, and other International Organizations in Vienna; Klemen Polak, Minister Plenipotentiary, Security Policy Department, Slovenian Ministry of Foreign and European Affairs; Nickolas Roth; Senior Director, Nuclear Materials Security. 

INSPIRING A SPACE FORCE WARRIOR ETHOS. 5/5, 3:00-4:00pm (EDT), VIRTUAL. Sponsor: Air & Space Forces Association. Speaker: John F. Bentivegna, Chief Master Sergeant of the Space Force.

RISKS AND REWARDS: WHAT TO EXPECT FROM THE GLOBAL ECONOMY. 5/5, 5:30-6:30pm (CDT) 6:30-7:30pm (EDT), HYBRID. Sponsor: Chicago Council on Global Affairs. Speakers: Joyce Chang, Chair of Global Research, J.P. Morgan; Phil Levy Lead Trade Economist, World Bank; Diane Swonk, Chief Economist, KPMG US.

 
CHARTING AUSTRALIA'S PATH: 2025 ELECTION RESULTS AND IMPLICATIONS. 5/5, 6:00-7:00pm (EDT), VIRTUAL. Sponsor: CSIS. Speakers: Charles Edel, Senior Adviser and Australia Chair; Laura Tingle, Political Editor, ABC News; Chris Uhlmann, Political Contributor, Sky News, Columnist, The Australian; Stephen Dziedzic, Foreign Affairs (Asia Pacific) Reporter, ABC News.