Takahide Kiuchi, Executive Economist, Financial Technology Solution Division
The reciprocal tariffs announced by the Trump Administration on April 2, 2025 (U.S. time; the same applies to all dates below) surpassed all previous expectations in their scale, seriously rattling global financial markets. Not only did the administration levy a 10% across-the-board tariff on all nations, but it also raised the tariff rate on countries running the largest trade deficits with the U.S. Japan was hit with a high tariff rate of 24%, which was arguably close to the worst-case scenario that anyone had predicted.
The Trump Tariffs Continue to Adversely Affect the World Economy
A series of additional tariffs have been imposed lately, starting on April 4 with the 25% tariffs on automobiles levied on all countries including Japan, followed on April 5 by an across-the-board 10% duty as part of a reciprocal tariff scheme, and then the even higher reciprocal tariffs that were issued on April 9. During this course of events, an intense tit-for-tat exchange of retaliatory tariffs between the U.S. and China took place, with the U.S. ultimately imposing the extremely high tariff rate of 145% on all Chinese imports, and with China responding by setting its own very high 125% tariff rate on all goods coming from the U.S.
Yet on April 10, the Trump Administration reversed course, announcing that there would be a 90-day pause keeping these higher reciprocal tariffs from taking effect. This would seem to have been intended to restore stability to the U.S. financial market, after the market panic that had ensued out of concerns that such tariffs would mean higher prices and other adverse economic effects. Furthermore, the aim may also have been to allow the Trump Administration room to hold tariff talks with the U.S.’s trade partners during those 90 days, and to hammer out some policy measures that would help reduce the country’s trade deficit.
Although the higher reciprocal tariff rate was temporarily put on hold, the extremely high tariff rate between the U.S. and China was left in place, which means that the global economy is still being hit. The U.S. has already commenced tariff talks with Japan and several other nations, but only now after nearly a month has passed does it seem that talks with China are about to begin. However, both countries have been calling for each other to make concessions, and so things remain at a standstill. If these two countries — the world’s first and second largest in terms of economic scale — end up playing a protracted game of chicken, it will put the global economy at heightened risk of a downturn.
Yet on April 10, the Trump Administration reversed course, announcing that there would be a 90-day pause keeping these higher reciprocal tariffs from taking effect. This would seem to have been intended to restore stability to the U.S. financial market, after the market panic that had ensued out of concerns that such tariffs would mean higher prices and other adverse economic effects. Furthermore, the aim may also have been to allow the Trump Administration room to hold tariff talks with the U.S.’s trade partners during those 90 days, and to hammer out some policy measures that would help reduce the country’s trade deficit.
Although the higher reciprocal tariff rate was temporarily put on hold, the extremely high tariff rate between the U.S. and China was left in place, which means that the global economy is still being hit. The U.S. has already commenced tariff talks with Japan and several other nations, but only now after nearly a month has passed does it seem that talks with China are about to begin. However, both countries have been calling for each other to make concessions, and so things remain at a standstill. If these two countries — the world’s first and second largest in terms of economic scale — end up playing a protracted game of chicken, it will put the global economy at heightened risk of a downturn.
There’s Still a Lot of Ground to Cover Before the U.S.-Japan Tariff Talks Reach Any Agreement
After the Trump Administration announced the reciprocal tariffs, Japan moved immediately to ask the U.S. to discuss tariffs, and so in a sense it obtained priority in terms of negotiations with the U.S. Yet given that Japan holds the largest trade deficit with the U.S. and is its top import partner, it’s unlikely that the U.S. will preferentially acquiesce to Japan’s requests to revise the tariff rate.
Following the first round of U.S.-Japan tariff talks held on April 16, a second round of talks was held in Washington on May 1. Japan's Economic Revitalization Minister Ryosei Akazawa, who has been tasked as the lead negotiator, did not provide any specific details about what happened in the talks at the subsequent press conference. However, Prime Minister Ishiba, who received Minister Akazawa’s report, remarked that the U.S. and Japan “haven't reached a point where we can find common ground yet”, suggesting that there was still some considerable distance to cover before the countries could reach an agreement.
At this latest round, Japan appears to have presented the U.S. with certain proposals, including expanding imports of U.S.-grown soybeans and corn, and easing the conditions under which the Preferential Handling Procedure (PHP) for Imported Motor Vehicles are applicable. Yet those policy measures would clearly seem inadequate to get the U.S. to significantly lower the tariff rate.
On the other hand, Minister Akazawa’s comments give the impression that the Japanese side is relatively bullish toward pursuing these talks. Minister Akazawa again emphasized the idea that Japan “would not sacrifice its national interests in the negotiations”. This remark was likely meant to demonstrate his intention not to make any major concessions to the U.S., such as agreeing to import more agricultural products (rice in particular), mindful of the negative effects that could have on the upper house election in July.
The U.S., for the time being, might well be trying to reach some interim agreement, one with a limited scope that would enable permit the two nations to reach some sort of compromise. If such a provisional agreement were achieved, the tariff rate on Japan would likely come down slightly.
The U.S.’s aim may be to give the financial markets the optimistic expectation that establishing a limited agreement with Japan will provide the jolt needed to encourage other nations to make agreements, or that even a slight reduction in tariffs now could potentially pave the way to larger cuts to tariff rates in the future. However, Minister Akazawa explained that the “negotiations must be handled as a package. A final agreement will be reached only after everything is agreed upon”, appearing to reject any notion of an interim agreement.
With the Japanese side taking such a relatively aggressive stance in these U.S.-Japan tariff talks, it wouldn’t appear to be in any hurry to reach an agreement by making any major concessions to the U.S.
Following the first round of U.S.-Japan tariff talks held on April 16, a second round of talks was held in Washington on May 1. Japan's Economic Revitalization Minister Ryosei Akazawa, who has been tasked as the lead negotiator, did not provide any specific details about what happened in the talks at the subsequent press conference. However, Prime Minister Ishiba, who received Minister Akazawa’s report, remarked that the U.S. and Japan “haven't reached a point where we can find common ground yet”, suggesting that there was still some considerable distance to cover before the countries could reach an agreement.
At this latest round, Japan appears to have presented the U.S. with certain proposals, including expanding imports of U.S.-grown soybeans and corn, and easing the conditions under which the Preferential Handling Procedure (PHP) for Imported Motor Vehicles are applicable. Yet those policy measures would clearly seem inadequate to get the U.S. to significantly lower the tariff rate.
On the other hand, Minister Akazawa’s comments give the impression that the Japanese side is relatively bullish toward pursuing these talks. Minister Akazawa again emphasized the idea that Japan “would not sacrifice its national interests in the negotiations”. This remark was likely meant to demonstrate his intention not to make any major concessions to the U.S., such as agreeing to import more agricultural products (rice in particular), mindful of the negative effects that could have on the upper house election in July.
The U.S., for the time being, might well be trying to reach some interim agreement, one with a limited scope that would enable permit the two nations to reach some sort of compromise. If such a provisional agreement were achieved, the tariff rate on Japan would likely come down slightly.
The U.S.’s aim may be to give the financial markets the optimistic expectation that establishing a limited agreement with Japan will provide the jolt needed to encourage other nations to make agreements, or that even a slight reduction in tariffs now could potentially pave the way to larger cuts to tariff rates in the future. However, Minister Akazawa explained that the “negotiations must be handled as a package. A final agreement will be reached only after everything is agreed upon”, appearing to reject any notion of an interim agreement.
With the Japanese side taking such a relatively aggressive stance in these U.S.-Japan tariff talks, it wouldn’t appear to be in any hurry to reach an agreement by making any major concessions to the U.S.
The Two Countries Are at Odds Over the Scope of the Tariff Talks
Throughout these bilateral tariff talks between the U.S. and Japan, the two countries seem to be at odds over what they believe the scope of the talks ought to be. The Japanese side wants the U.S. to lower and ultimately rescind both the 25% industry-specific tariffs on cars, car parts, steel, and aluminum and the reciprocal tariff rate of 24% (currently 10% during the 90-day pause). By contrast, the U.S. believes that the scope of these tariff talks should be limited to that additional reciprocal tariff.
For its part, the Japanese side appears to be most concerned about getting the U.S. to revise the 25% tariff rate on automobiles, which will have a serious impact on corporate management and hiring. In the long history of trade negotiations between the U.S. and Japan up to the present, the Japanese government has regarded avoiding automobile tariffs as a top priority. Even in the 2019 U.S.-Japan Trade Agreement, the Japanese government took great pains to avoid having the U.S. place tariffs on Japanese cars, agreeing to a lower tariff rate for imported agricultural products in exchange.
If the two countries can’t achieve a shared view on the scope of the tariff talks, then arguably they have yet to reach full-fledged negotiations.
Even so, leaving aside the U.S.’s expectations, I think it’s reasonable for the Japanese side to demand that the U.S. lower and even rescind not just the reciprocal tariffs, but also the 25% tariffs on cars, car parts, steel, and aluminum. That’s because in the first place, the tariff policies undertaken by the Trump Administration — including both the industry-specific tariffs on automobiles etc. and the country-specific reciprocal tariffs — are unreasonable.
I’d argue that it’s only appropriate for Japan to press the U.S. to revise its tariff policies as a whole, not merely to safeguard its own national interests, but to protect global free trade as well.
For its part, the Japanese side appears to be most concerned about getting the U.S. to revise the 25% tariff rate on automobiles, which will have a serious impact on corporate management and hiring. In the long history of trade negotiations between the U.S. and Japan up to the present, the Japanese government has regarded avoiding automobile tariffs as a top priority. Even in the 2019 U.S.-Japan Trade Agreement, the Japanese government took great pains to avoid having the U.S. place tariffs on Japanese cars, agreeing to a lower tariff rate for imported agricultural products in exchange.
If the two countries can’t achieve a shared view on the scope of the tariff talks, then arguably they have yet to reach full-fledged negotiations.
Even so, leaving aside the U.S.’s expectations, I think it’s reasonable for the Japanese side to demand that the U.S. lower and even rescind not just the reciprocal tariffs, but also the 25% tariffs on cars, car parts, steel, and aluminum. That’s because in the first place, the tariff policies undertaken by the Trump Administration — including both the industry-specific tariffs on automobiles etc. and the country-specific reciprocal tariffs — are unreasonable.
I’d argue that it’s only appropriate for Japan to press the U.S. to revise its tariff policies as a whole, not merely to safeguard its own national interests, but to protect global free trade as well.
Measures to Eliminate the Trade Surplus With the U.S. Could Deal a Huge Blow to the Japanese Economy
With the first round of U.S.-Japan tariff talks conducted back in April, President Trump decided to participate only at the last minute. At the time, President Trump told Minister Akazawa that he wanted “to zero out” the U.S. trade deficit with Japan. I believe that eliminating the U.S.’s trade deficit with Japan and its trade deficits with other nations, and thereby erasing the country’s entire trade deficit, is precisely what the Trump Administration ultimately aims to accomplish through its tariff policies and bilateral tariff talks.
However, enacting policy measures that accede to the Trump Administration’s demands would deal a huge blow to the Japanese economy. Japan’s trade surplus with the U.S. last year was around 8.6 trillion yen, but if this were to be eliminated in one stroke through measures to significantly reduce exports and increase imports, the direct effects alone would lead Japan’s nominal GDP to shrink by 1.4%.
That said, at present, the 25% industry-specific tariffs on cars, car parts, steel, and aluminum and the 10% reciprocal tariffs imposed on Japan by the U.S. will drive Japan’s GDP down by 0.46% in total, according to my calculations. And if the 24% reciprocal tariff rate does get reapplied after the 90-day pause expires, together with the industry-specific tariffs, the effect would bring down Japan’s GDP by 0.81%. those effects are certainly substantial, but compared to what would happen if Japan were to accept measures that do away with its trade surplus with the U.S. all at once, they could be considered small.
Given these points, Japan surely would do well to avoid simply acquiescing to any policies that would eliminate its trade surplus to the U.S. as the Trump Administration wants to do.
Meanwhile, the Trump Administration’s tariff policies have been wreaking havoc in the financial markets, and with mounting criticism from the U.S. corporate sector and consumers, they would seem to be rapidly approaching an impasse.
Trump’s public approval rating in the U.S. has also started to fall. To prevent these developments from severely hurting the Republican party’s chances in the midterm elections next November, at some point in the next several months, the Trump Administration may itself choose to overhaul its tariff rates on all other countries by moving to scale them back. Until then, Japan’s best bet may well be to steer clear of making any major concessions and keep standing firm in the U.S.-Japan tariff talks, in order to buy itself more time.
However, enacting policy measures that accede to the Trump Administration’s demands would deal a huge blow to the Japanese economy. Japan’s trade surplus with the U.S. last year was around 8.6 trillion yen, but if this were to be eliminated in one stroke through measures to significantly reduce exports and increase imports, the direct effects alone would lead Japan’s nominal GDP to shrink by 1.4%.
That said, at present, the 25% industry-specific tariffs on cars, car parts, steel, and aluminum and the 10% reciprocal tariffs imposed on Japan by the U.S. will drive Japan’s GDP down by 0.46% in total, according to my calculations. And if the 24% reciprocal tariff rate does get reapplied after the 90-day pause expires, together with the industry-specific tariffs, the effect would bring down Japan’s GDP by 0.81%. those effects are certainly substantial, but compared to what would happen if Japan were to accept measures that do away with its trade surplus with the U.S. all at once, they could be considered small.
Given these points, Japan surely would do well to avoid simply acquiescing to any policies that would eliminate its trade surplus to the U.S. as the Trump Administration wants to do.
Meanwhile, the Trump Administration’s tariff policies have been wreaking havoc in the financial markets, and with mounting criticism from the U.S. corporate sector and consumers, they would seem to be rapidly approaching an impasse.
Trump’s public approval rating in the U.S. has also started to fall. To prevent these developments from severely hurting the Republican party’s chances in the midterm elections next November, at some point in the next several months, the Trump Administration may itself choose to overhaul its tariff rates on all other countries by moving to scale them back. Until then, Japan’s best bet may well be to steer clear of making any major concessions and keep standing firm in the U.S.-Japan tariff talks, in order to buy itself more time.
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Takahide KiuchiPortraits of Takahide Kiuchi
Executive Economist
Takahide Kiuchi started his career as an economist in 1987, as he joined Nomura Research Institute. His first assignment was research and forecast of Japanese economy. In 1990, he joined Nomura Research Institute Deutschland as an economist of German and European economy. In 1996, he started covering US economy in New York Office. He transferred to Nomura Securities in 2004, and four years later, he was assigned to Head of Economic Research Department and Chief Economist in 2007. He was in charge of Japanese Economy in Global Research Team. In 2012, He was nominated by Cabinet and approved by Diet as Member of the Policy Board, the committee of the highest decision making in Bank of Japan. He implemented decisions on the Bank’s important policies and operations including monetary policy for five years.
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