In a rare moment of heightened tension, Japan’s Prime Minister, Shigeru Ishiba, on Friday described US President Donald Trump’s recent tariffs on Japanese goods as a “national crisis.” This statement comes as Japan braces for the economic consequences of the 24% tariff on imports from its major trading partner. Ishiba’s comments were made ahead of crucial cross-party discussions focused on alleviating the impact of the tariffs, especially on Japan’s export-dependent economy.
This latest trade battle between the two nations follows Trump’s announcement of a global “reciprocal” tariff policy, including the imposition of a 25% tariff on US-bound auto imports, which took effect this week. Ishiba, while acknowledging the severity of the situation, urged for a “calm-headed” approach in engaging the US, given the complexity of the ongoing trade negotiations.
In a bid to resolve the standoff, Japan’s Foreign Minister, Takeshi Iwaya, called for urgent dialogue with US officials during his meeting with Secretary of State Marco Rubio in Brussels. He described the tariffs as “extremely regrettable,” and strongly urged the US to reconsider its position. Meanwhile, Japanese media reports suggest that efforts are underway to arrange a direct conversation between Prime Minister Ishiba and President Trump, whose diplomatic relations in February had appeared more cordial.
The financial markets responded to the escalating trade tension with a significant sell-off. The Tokyo Stock Exchange’s Nikkei 225 index plummeted 2.75% on Friday, following a 2.7% decline the previous day. The losses mirrored a sharp fall in the US S&P 500, which saw its largest single-day drop since 2020.
In light of the challenging economic forecast, Ishiba called for “all necessary measures, including financial support” for Japan’s industries, particularly those facing the brunt of the tariffs. The Japanese government is reportedly preparing a supplementary budget to support affected sectors, including automotive manufacturing and small businesses.
The Japan Chamber of Commerce and Industry (JCCI) voiced grave concerns over the potential long-term damage to the national economy. In a statement, the JCCI stressed the need for the government to intensify negotiations for an exemption from the tariffs, while also implementing robust measures to protect small and medium-sized enterprises. The JCCI further called for a reinforced system of consultation and financial assistance to mitigate the economic damage.
The Japan Automobile Manufacturers Association (JAMA) echoed these concerns, highlighting the potential devastation for the country’s automotive sector. JAMA revealed that Japanese automakers have invested over $66 billion in US manufacturing, supporting upwards of 110,000 direct jobs and over 2.2 million additional positions in the supply chain. The association warned that without comprehensive support, the foundation of Japan’s automotive industry could be at risk.
While the US-Japan trade imbalance stood at nearly $70 billion last year, with Japan exporting predominantly vehicles, auto parts, machinery, and electronics to the US, the White House has pointed to Japan’s “700% tariff” on US rice as a key issue in the ongoing trade dispute. Japan’s Agriculture Minister, however, dismissed the claim as “incomprehensible,” urging for a more nuanced understanding of trade barriers.
Despite the unfolding crisis, analysts have offered varied predictions regarding the impact on Japan’s economy. Fitch Solutions, through its BMI division, warned that Japan could see a 0.7% reduction in GDP in the worst-case scenario. However, Capital Economics is more optimistic, estimating a modest hit of 0.2%, arguing that Japan’s economic dependence on US demand is not as significant as perceived.
With the clock ticking on resolving this trade dispute, Japan’s government remains committed to minimizing the damage through diplomatic efforts and domestic economic support. The coming weeks will be crucial in determining the broader implications for global trade relations.
