TOKYO—The Trump administration has good reasons to put Japan near the top of the list in its whirlwind round of global trade talks, hoping a deal with a country it believes to be under Washington’s thumb would set a no-nonsense tone for tougher talks ahead. Yet the bureaucrats in the Japanese government, with experience and institutional knowledge going back to the bruising trade battles of the 1980s and ’90s, are unlikely to be pushovers.
The 24 percent punitive tariffs that U.S. President Donald Trump initially set for Japan raised alarm bells in Tokyo, especially since the important auto sector was hit with separate 25 percent levies. The administration has not made clear how the two tariffs would work and if they would be simply stacked on top of each other. Japanese Prime Minister Shigeru Ishiba told a parliamentary hearing in April that the tariff threat “can be called a national crisis and the government is doing its best with all parties” to lessen the impact. This is, of course, just what Trump wanted, with boasts at the time that more than 50 countries all wanted to cut deals with him.
TOKYO—The Trump administration has good reasons to put Japan near the top of the list in its whirlwind round of global trade talks, hoping a deal with a country it believes to be under Washington’s thumb would set a no-nonsense tone for tougher talks ahead. Yet the bureaucrats in the Japanese government, with experience and institutional knowledge going back to the bruising trade battles of the 1980s and ’90s, are unlikely to be pushovers.
The 24 percent punitive tariffs that U.S. President Donald Trump initially set for Japan raised alarm bells in Tokyo, especially since the important auto sector was hit with separate 25 percent levies. The administration has not made clear how the two tariffs would work and if they would be simply stacked on top of each other. Japanese Prime Minister Shigeru Ishiba told a parliamentary hearing in April that the tariff threat “can be called a national crisis and the government is doing its best with all parties” to lessen the impact. This is, of course, just what Trump wanted, with boasts at the time that more than 50 countries all wanted to cut deals with him.
One area of astonishment for Japanese officials was where the 24 percent figure for tariffs came from, which seemed to be a ChatGPT-generated formula based not, as claimed, on the other nation’s tariff rates but on the balance of trade. “Why didn’t they look at the website for the World Trade Organization? They could have seen that Japan’s tariff rate averages around 2 to 4 percent,” one exasperated former senior trade official told me. It is not the only area of miscommunication.
The two sides have held two rounds of talks in Washington, with the 25 percent auto tariff the main area of contention, according to Japanese officials.
U.S. officials can point to a number of reasons why Tokyo might sue for peace in a trade war. Japan has long enjoyed a healthy trade surplus with the United States, totaling $68.5 billion in 2024. Japanese exporters have also benefited from a sharp 25 percent decline in the Japanese yen since 2020. This means that, despite the howls, they have plenty of wiggle room to absorb some or all of the tariff costs. In this one instance at least, Trump had a point when he contended that tariffs could serve as a way to tax foreign suppliers rather than U.S. consumers.
Most importantly, Japan needs the United States for its strategic nuclear defense, especially in the face of an increasingly aggressive China. In Trump 1.0, Washington had quietly threatened to demand payment of $8 billion per year to cover the costs of the extensive U.S. military presence in Japan, primarily the southernmost islands of Okinawa. This would represent a fivefold increase from the current estimate of around $2 billion, which mostly covers the cost of civilian workers and other ancillary costs at the bases that hold 55,000 U.S. military personnel.
The other risk for Japan is the auto sector. Japanese automakers like to say they are good U.S. corporate citizens. They point to investments of more than $66 billion in U.S. manufacturing and the fact that one-third of all autos produced in the United States are made by Japanese brands. But imported parts and vehicles still represent a large share of what Japanese automakers sell in North America. The auto sector accounts for about 30 percent of all Japanese exports to the United States. This includes 1.5 million autos yearly.
Japan has said the 25 percent tariffs are a nonstarter, but the issue is also dear to Washington’s (meaning Trump’s) heart. With the overwhelming success of Japanese autos in the U.S. market since the 1970s, it is a highly visible target. In addition, the Trump team can point to the now-famous “chicken tariffs” of 1964, in which Washington imposed 25 percent tariffs on imported small trucks. This has been cited as giving Detroit one of its few areas of success, managing to keep the globally ubiquitous Toyota pickup largely out of the U.S. market.
Japan does hold one trump card in all this. With its $1.126 trillion in U.S. Treasury securities, it is the world’s largest foreign holder of U.S. debt, well ahead of mainland China at No. 2, with just $784 billion. The health of the U.S. Treasury bond market has already proved to be a risk for the Trump administration. Even though stocks posted large losses after the April 2 announcement of tariffs, analysts were more concerned about the fact that Treasury securities were also being sold off, the opposite of what normally happens in times of crisis. Any sharp downturn in bonds could create a firestorm effect where large holders feel the need to join the exit, leading to a potential market crash.
Japanese officials initially said they would not consider such a move. “As an ally, we would not intentionally take action against U.S. government bonds, and causing market disruption is certainly not a good idea,” Itsunori Onodera, policy chief for the ruling Liberal Democratic Party, said in mid-April.
This was echoed by Finance Minister Katsunobu Kato, who then seemed to change his mind by saying that they could be considered, only to then go back to his original view days later. If the goal was to confuse the other side, the Japanese government has certainly succeeded.
Japan has used such language in previous trade spats. In June 1997, when Japan was under severe pressure for being too successful in making and selling automobiles, televisions, and video recorders, Japanese Prime Minister Ryutaro Hashimoto stunned the markets when he rather abruptly said in remarks at Columbia University that he hoped Washington would pursue the right policies “so we don’t have to succumb to the temptation to sell off U.S. Treasury bills.” The comment was quickly “clarified” by Japanese officials, but the point was made.
It’s possible that U.S.-Japan talks could actually create the elusive “win-win” adored by writers of business books. Both governments share the view that the Japanese yen’s decline of 25 percent has been too much. The weak yen helps Japanese multinationals, especially for the profitability of their foreign operations. But it has also pushed up prices sharply for Japanese consumers, who are deeply unhappy about inflation after three decades of steady or slightly declining prices. The core index was up to 3.4 percent in April, well above the Bank of Japan’s 2 percent target and runs the risk of spiraling higher as the higher costs of imported raw materials and food stuffs work into the domestic economy.
One easy win would be for an increase in imports of rice, a Japanese staple that occupies a traditionally sacred role. Retail prices in Japan have shot up 90 percent over the past year as recent poor harvests and the mass retirement of the postwar generation of farmers has suddenly hit supply.
Japan is deeply defensive about its domestic rice production, and imported rice has theoretically carried a top-line tariff of anywhere from 200 to 788 percent, depending on the calculation, a figure jumped on by the Trump team. The true situation is more complex, with a certain quota allowed in tariff-free. Dropping the overall tariff could be seen as a big win for the Trump administration and would help solve the rice sticker shock in Japan. The only potential flaw for the Trump administration is that the most suitable import would be Japonica rice from blue-state California, but you can’t have everything.
One red herring in the trade feud is the issue of the sale, or the lack thereof, of U.S. cars in Japan. Trump is not the first U.S. president to raise this. Barack Obama, on a trip to Japan in 2014, complained to Prime Minister Shinzo Abe that he didn’t see any U.S. cars on the streets. “You have to do something about that,” he is quoted as saying in Abe’s memoirs.
Abe tried to push back by noting that Japan has a no import duty on vehicles, but that didn’t help much. There is some reasonable complaining about non-tariff barriers, especially over testing, although Trump’s long-standing claim that Japan requires a car to withstand a falling bowling ball has led to considerable confusion over where he got the idea.
There are many reasons for the paucity of U.S. cars on Japanese streets. While Japan is the world’s third-largest auto market, at 4.4 million in annual sales, 35 percent of these are low-powered small cars and small (very small) trucks that are well suited to the myriad narrow streets, even in major cities such as Tokyo. There are some buyers of BMWs, Mercedes-Benzes, and Porsches, but foreign makers overall account for just 5 percent of the market. It is difficult to see what Detroit could bring in that would replace any of these market niches. In addition, a presence in the market is not just about the initial sale. The need for repair departments with properly trained mechanics, an inventory of spare parts, and the high level of service demanded by Japanese consumers make the idea a logistical nightmare. This prompted Ford to pull completely out of the market in 2016, citing the overhead costs to support sales of 5,000 vehicles a year.
In the end, an agreement is almost certain to be announced since it is too important for either side to have it end in failure. A deal is likely to have the classic formula when negotiating with the Japanese bureaucracy: headlines looking as if the United States emerged the winner, announcements of large-scale investments that are already planned, and little-noticed details in the final text that ensure the agreement has little impact on Japan’s economy or its exporters.
In fact, some Japanese economists are already saying there is less to the dispute than meets the eye. “The negative impact on Japan will be limited so Japan should not be overly swayed by the changing policies of the U.S.,” Keiko Ito, a professor at Chiba University’s Graduate School of Social Sciences, said at a recent press seminar. She said that in most cases, domestic substitution would take years to create and that in key areas such as auto parts, the imports represent an internal company transfer where pricing is less critical. The bigger issue, Ito said, is the risk of a global recession. “What we are more concerned about is a contraction of trade globally, and that could result in the stagnation of the global economy.”
