On July 23, the Trump Administration announced that it would be imposing new tariffs on 60 countries and regions including Japan. The tariff rate varies between 10% and 12.5% depending on the country and region, with Japan subject to the higher 12.5% rate.
This decision is roughly in line with prior expectations. The United States Trade Representative (USTR) outlined a draft of the new tariffs in June, soliciting a broad range of opinions, but the final version was very close in content to the original proposal.
These two tariff rates were imposed on particular countries and regions depending on whether they had taken adequate measures to ban imports made using forced labor, but Japan was hit with the 12.5% rate on the grounds that its measures were severely deficient. The EU and Taiwan for example were subject to the 10% tariff rate, while other nations including South Korea and Switzerland were stuck with the same higher 12.5% rate as Japan.
This new rate is a mere 2.5 percentage points higher than the 10% across-the-board tariffs that were in place since February of this year (excluding sector-specific tariffs on steel, aluminum, and certain other imports), i.e., the so-called alternative tariffs. It is estimated that this hike raising the tariff rate to 12.5% will bring Japan’s nominal GDP down by an annual 0.06%, which comes out to 402.0 billion yen. That impact is arguably relatively minor. This new rate also falls below the reciprocal tariff rate that was agreed upon by Japan and the U.S. in July of last year, which was 15%.
In addition, in the tariff agreement reached by Japan and the U.S. last July, it was decided that neither country would simply add reciprocal tariffs on top of existing tariffs, but that agreement also applies to this new tariff. In other words, this new tariff rate of 12.5% is not being tacked onto the existing tariff rate to reach a yet higher rate. This is good news for Japanese exporters of beef and other farm products, which have long been subject to high tariff rates for U.S.-bound exports.
The new scheme also incorporates measures to reduce the tariff burden, with over 2,000 items to be exempted from the scope of the latest tariffs. In light of these points, the additional blow dealt by these new tariffs to the Japanese economy would surely be minimal.

The new tariffs are based on Section 301 of the U.S. Trade Act, which allows tariffs to be imposed as sanctions against another country for unfair trade practices. These latest tariffs are being imposed on the grounds that Japan has failed to take adequate steps to ban imports made with forced labor, but that reason is something of an afterthought, and in reality, the aim of these tariffs would seem to be to resurrect the reciprocal tariffs that were ruled to be unlawful by the Supreme Court this past February and thereby invalidated.
Ever since the reciprocal tariffs were invalidated in February, a 10% alternative tariff had been imposed under Section 122 of the Trade Act as a 150-day interim measure. The Trump Administration has now substituted these provisional alternative tariffs with these new, more permanent tariffs based on Section 301 of the Trade Act, effectively bringing the reciprocal tariff scheme back to life.
The reciprocal tariffs based on the International Emergency Economic Powers Act (IEEPA) that were rolled out in April of last year were invalidated approximately 10 months later after the Supreme Court ruled them to be unlawful this past February. A number of lawsuits have also been filed against the alternative tariffs under Section 122 of the Trade Act, which replaced them.
The Trump Administration believes that because Section 301 of the Trade Act has previously withstood numerous lawsuits, the new tariffs imposed thereunder will not be ruled unlawful. However, the ruling handed down in February seemed to hint that the legality of any and all tariff measures enacted by the president without Congress’s approval was suspect.
Further, any punitive tariffs under Section 301 of the Trade Act require the unfair trade practices of the other country to be carefully mapped out. It is hard to suppose that a full and thorough preliminary studies has been performed in 150 days on the majority of the imports coming from these 60 countries and regions. From this perspective, the inadequacy of the preliminary studies would also surely cast doubt on the legal justification for these new tariffs under Section 301 of the Trade Act.
In light of the foregoing, the new tariffs under Section 301 of the Trade Act surely stand a chance of being struck down by the Supreme Court as unlawful. In addition, since tariffs give way to higher costs and inflation, they are generally unpopular with U.S. enterprises and citizens alike. Given these legal barriers and the obstacle posed by public opinion, there is a risk that the Trump tariffs could get stalled going forward.

However, there still seems to be a lingering possibility that we may see a round two to these new tariffs under Section 301 of the Trade Act. The rate for these new tariffs falls within the range of 10%-12.5%, which is still a low level compared to the reciprocal tariffs that were invalidated. For that reason, it still seems possible that the Trump Administration could move to raise the tariff rate even further, with the intention of reviving the reciprocal tariffs.
As a prelude to imposing the tariffs under Section 301 of the Trade Act, the USTR has been conducting investigations since March 11 into structural excess capacity and production, concurrently with its investigations into the steps being taken to ban imports made using forced labor. The investigations concerning excess capacity and production cover a total of 16 nations.
At present, the Trump Administration has made no mention of enacting any additional tariffs under Section 301 of the Trade Act on the grounds of excess capacity and production, but such an announcement might still be made going forward depending on how the investigations unfold.
The U.S. response to this excess capacity and production lies at the heart of the Trump Administration’s economic strategy of “rebuilding America’s manufacturing base”, and this could be used as the basis for rolling out new tariffs down the road. The Trump Administration has pointed out this excess capacity and production problem mainly in reference to China and the EU. In the end, the question of whether or not to subject China to additional tariffs will have to be decided carefully in light of various risks, such as worsening relations with China and the chance that China could restrict exports of rare earths as a retaliatory measure.
As for the EU, an agreement had been reached for reciprocal tariffs to be imposed at a 15% rate. Given that the new tariffs were imposed at the 10% rate because the EU members had taken insufficient steps to ban imports made using forced labor, it seems possible that the U.S. could tack on an additional 5% tariff on the grounds of excess capacity and production, thereby bringing the total rate up to 15%, which would be the same level as the reciprocal tariffs.
Even if Japan were also subjected to additional tariffs for reasons of excess capacity and production, there would seem to be little chance that the rate would exceed the reciprocal tariff rate of 15% that was agreed upon between Japan and the U.S. In that event, it is conceivable that the tariff rate on Japan could be raised by 2.5 percentage points, putting the new tariff rate under Section 301 of the Trade Act at a total of 15%.

These new tariffs imposed under Section 301 of the Trade Act might also be hit with numerous lawsuits, and ultimately be found to be unlawful just as occurred with the reciprocal tariffs. Yet it could take a year or longer for that to happen, and the Trump Administration would surely continue with its strategy of putting pressure on other nations through various tariff measures.
Around the time these new tariffs were introduced, President Trump not only announced additional 50% tariffs on Canadian dairy products, alcohol and automobile parts on July 20, but also announced that the U.S. was imposing a 25% tariff rate on Brazil, as well as a maximum of 200% tariffs on generic drugs.
Section 232 of the Trade Expansion Act and Section 301 of the Trade Act constituting the basis for the sector-specific tariffs each prescribe certain procedures that must be carried out, such as conducting investigations and submitting opinions, but this is not the case with Section 338 of the Trade Act, on which the new tariffs against Canada are based. The President has the authority to place up to 50% tariffs on imports coming from any country that commits discrimination against the commerce of the U.S.
The Trump tariffs are being hampered by public criticism and legal barriers, and it is possible they will broadly remain at a standstill. Yet even still, for some time, President Trump will perhaps continue to seek out whatever legal loopholes he can find, possibly issuing a slew of new tariffs to confound other nations. That carries the major risk of creating even more uncertainty for Japan’s economy and the global economy alike.