25％ tariff would be blow to Japanese economy; major exporters foresee drastically reduced profits
TOKYO – The tariff rates for 'reciprocal tariffs' that U.S. President Donald Trump notified Japan of were raised slightly after three months of negotiations between Japan and the United States. The Japanese government aims to reach an agreement by Aug. 1, the new deadline for negotiations set by the U.S. side, but there are no signs of reaching an agreement. There are growing concerns that the prolongation of negotiations will have a greater impact on the Japanese economy.
Largest export destination
Following the U.S. notification, economic revitalization minister Ryosei Akazawa, Japan's chief negotiator for the tariff issue, held 40-minute telephone talks with U.S. Commerce Secretary Howard Lutnick on Tuesday afternoon.
'The U.S side has proposed to proceed with talks with Japan swiftly toward Aug. 1,' Akazawa told reporters after the phone talks, emphasizing his intention to reach an agreement with the United States as soon as possible.
According to Finance Ministry trade statistics, exports to the Untied States totaled ¥21.6 trillion in fiscal 2024, or about 20% of the nation's exports of ¥108.9 trillion in the fiscal year. This means that the United States is Japan's largest export destination, surpassing China at ¥18.9 trillion.
The reciprocal tariffs cover a wide range of export products, including electronics products and precision machines, areas in which Japan holds competitive edges. Such products are estimated to account for about 50% of Japan's exports to the United States. If the tariff rate of 25% is imposed, the impact on the Japanese economy will be enormous.
Production transfer in sight
Japanese companies that had been hoping for a lower tariff rate than initially announced are expressing disappointment. 'We will proceed with cost reductions, but price increases in the United States will be inevitable,' a Yamaha Motor Co. spokesman said, lamenting the situation. The company's main product, outboard motors, is subject to reciprocal tariffs. The company had estimated that its operating profit for the business year ending December 2025 would be reduced by about ¥45 billion if the tariff rate of 24% had been applied from July.
A high percentage of Japan's construction machinery is exported to the United States. Komatsu Ltd., a major construction machinery manufacturer, had also projected a cost increase of ¥78 billion for the business year ending March 2026.
Kubota Corp., which exports tractors and other products to the United States, estimates that a 10% reciprocal tariff rate would reduce its operating profit by about ¥40 billion in the business year ending December 2025. A spokesman for another construction machinery manufacturer said the company would have to consider shifting some of its production to the United States.
Meanwhile, the Japanese government has been engaged in negotiations with the United States with the priority of lowering automobile tariffs, aiming to reach an agreement by Wednesday. Automobiles and automobile parts account for about 30% of Japan's exports to the United States. However, as negotiations still continue, the 25% additional tariffs on automobiles will remain in place.
The Trump administration has imposed uniform tariffs on automobiles, except for those from the United Kingdom. In a deal reached after negotiations, the United States has lowered to the tariff rate on U.K. automobiles to 10% in exchange for restrictions on export volumes. Trump has repeatedly stated that automobile trade between Japan and the United States is 'unfair,' and a letter he sent to give notice of the latest tariff also indicates that Japan's request for a lower automobile tariff will not be easily granted.
GDP decline
It is highly possible that the 25% reciprocal tariffs and prolonged Japan-U.S. negotiations will have a negative impact on the whole Japanese economy.
Kazuki Fujimoto, a researcher at Japan Research Institute, Ltd., estimates that a 25% reciprocal tariff would reduce Japan's exports to the United States by ¥4.4 trillion to ¥6.5 trillion per year and cut operating profits of exporting companies by up to 26%.
According to Daiwa Institute of Research Ltd., the U.S. tariff measures, including the 25% reciprocal tariff, are expected to reduce real GDP by 1.3% in 2025.
Takahide Kiuchi, executive economist at Nomura Research Institute, Ltd., notes, 'If reciprocal tariffs are raised to 25%, the probability of the Japanese economy entering a mild recessionary phase by next year will exceed 50%.'
Trump dissatisfied with talks
U.S. President Donald Trump is apparently growing increasingly frustrated with the deadlock in trade negotiations.
With his unilateral announcement of new tariff rates on U.S. trading partners, including Japan, he is stepping up pressure to extract further concessions from other countries.
Trump, who views the trade deficit as a major problem, imposed 'reciprocal tariffs' in April with the aim of reviving U.S. manufacturing and correcting trade imbalances. The imposition of the additional tariffs was suspended for 90 days, with the anticipation of concluding favorable trade agreements.
In an interview with U.S. publication Time magazine, released at the end of April, Trump said he believed negotiations would be concluded within three to four weeks. White House officials also expressed confidence that they would reach 90 agreements in 90 days.
However, three months after negotiations began, the United States has only concluded agreements with Britain and Vietnam.
Trump seems particularly dissatisfied with negotiations with Japan.
Initially, Japan was a top priority, and Trump hoped to use the conclusion of an agreement with Japan to showcase his administration's achievement. However, Japan has not been as willing to compromise as expected on certain issues, such as on automobile tariffs, and negotiations have been deadlocked.
With negotiations making little progress, Trump grew increasingly frustrated and reiterated his dissatisfaction with Japan's automobile trade policy in an interview with broadcaster Fox News on June 29, saying, 'It's not fair.'
On July 1, Trump said an agreement with Japan was uncertain and hinted at the possibility of imposing 30% to 35% tariffs.
The 25% tariff rate exceeds the 24% announced in April, likely indicating a tough stance toward Japan.
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