Japan’s exports grew for the fourth consecutive month in January, driven primarily by strong auto shipments to the United States. However, if U.S. President Donald Trump follows through with his plan to impose hefty auto tariffs, the trend could see a sharp reversal.
Economic Growth and Trade Performance
The positive trade report follows Japan’s GDP data released earlier in the week, which showed stronger-than-expected economic growth for the October-December quarter. This data supports the central bank’s stance on continuing interest rate hikes.
Trump announced on Tuesday his intent to impose auto tariffs “in the neighborhood of 25%,” possibly as early as April 2. This statement has caused concern in Tokyo, with Japan’s Chief Cabinet Secretary Yoshimasa Hayashi acknowledging that the government has raised the issue with the U.S. due to the importance of Japan’s auto industry.
Significance of Auto Exports
Japan relies heavily on exports, and the United States remains its largest export destination, accounting for 21 trillion yen ($138 billion) in goods, with automobiles making up approximately 28% of that total. “As autos represent Japan’s biggest exports, the impact of auto tariffs would be significant,” said Koki Akimoto, an economist at Daiwa Institute of Research.
Possible Industry Reshuffling
Analysts suggest that major automakers like Toyota and Honda may need to restructure their global production strategies to counteract the impact of the proposed tariffs. Currently, the U.S. imposes a 2.5% tariff on passenger cars and a 25% tariff on imported pickup trucks.
Nomura Research Institute’s executive economist, Takahide Kiuchi, estimated that a 25% tariff on autos and auto parts could reduce Japan’s GDP by up to 0.2% over two years.
Wider Trade Implications
Beyond auto tariffs, reciprocal duties on a broader range of products could further impact Japan. While Japan maintains one of the world’s lowest average tariff rates, increased scrutiny of non-tariff barriers like safety regulations could present additional challenges.
Trump pressed Japanese Prime Minister Shigeru Ishiba during their recent White House summit to address Japan’s $68.5 billion annual trade surplus with the U.S.
January Trade Figures
Japan’s total exports rose 7.2% year-on-year in January, slightly below the market forecast of 7.9%, but higher than December’s 2.8% increase. Exports to the U.S. climbed 8.1%, benefiting from strong auto sales and a weaker yen, which boosted export values. Conversely, exports to China dropped 6.2%, largely due to declining shipments of chipmaking equipment.
Imports surged 16.7% year-on-year in January, surpassing market expectations of a 9.7% increase. As a result, Japan recorded a trade deficit of 2.759 trillion yen ($18.2 billion), exceeding the anticipated deficit of 2.1 trillion yen.
