Trump’s 25% auto tariff, effective April 3, risks recession in Japan and stagflation in the US. Japan’s 2025 GDP growth forecast remains at 0.9%, pending tariff negotiations.
Key View
- Trump’s 25% tariff on imported autos, due to take effect on April 3, poses recessionary risks to the Japanese economy.
- However, his aggressive tariff hikes so far risk a light-form of stagflation in the US as well, such that we expect him to eventually lower tariffs in return for concessions.
- We therefore maintain our 2025 Japan real GDP growth forecast at 0.9% pending tariff negotiations.
On March 26, US President Donald Trump announced a permanent 25% blanket additional tariff on automobile and automobile parts imports, with some carveouts for parts compliant with the USMCA. According to the White House, the tariff will take effect on April 3 with the stated aim of reshoring automobile production to the US. For context, the export of autos and related parts to the US made up a little below 7% of Japan’s total exports in 2024 (see chart below).
The potential imposition of auto tariffs by the United States could have a profound impact on Japan’s economy, pushing it precariously close to recession. Japan’s automotive sector is a linchpin of its economic strength, heavily reliant on exports to the U.S. market. With American tariffs making Japanese cars more expensive, demand is likely to decrease, leading to a significant decline in sales and production, ultimately stifacing growth.
Moreover, the ripple effects of these tariffs would extend beyond the automakers themselves. Jobs in Japan’s manufacturing sector would be at risk, and the overall consumer confidence could wane as individuals brace for economic uncertainty. The interconnected nature of global supply chains means that not only auto manufacturers, but also suppliers and related industries could face substantial setbacks, further exacerbating the economic situation.
In response, Japan may need to reassess its trade strategies and seek new markets to mitigate the financial strain. However, adapting to such swift changes while grappling with potential recessionary pressures will present immense challenges for policymakers. The looming threat of U.S. tariffs thus underscores the fragility of international trade relationships and highlights the need for diplomatic engagements to avoid destabilizing repercussions.
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