Japan’s auto exports boost growth, faces U.S. tariff risk

February 19, 2025 (MLN): Japan's exports rose for a fourth consecutive month in January led by auto shipments to the United States, but if U.S. President Donald Trump goes through with a plan to impose hefty car tariffs, a sharp drop-off is likely.

The solid trade report came after Japan's GDP data released on Monday showed the economy grew faster than expected in the October-December quarter, strengthening the case for the central bank to continue raising interest rates.

Trump said on Tuesday he intends to impose auto tariffs "in the neighborhood of 25%" and that they could come as soon as April 2  remarks that have sparked concern from Tokyo.

"The government has raised the issue of auto tariffs with the U.S. based on the importance of Japan's auto industry," Japan's Chief Cabinet Secretary Yoshimasa Hayashi told reporters on Wednesday.

Japan is an export-reliant economy and the United States is its biggest export destination, accounting for 21 trillion yen ($138 billion) worth of goods with automobiles representing roughly 28% of that.

"As autos represent Japan's biggest exports, the impact of auto tariffs would be significant," said Daiwa Institute of Research economist Koki Akimoto.

Large tariffs are likely to force automakers such as Toyota Motor and Honda Motor to reshuffle their global production, analysts say.

Currently, the U.S. passenger car tariff rate stands at 2.5%, while a 25% tariff is levied on highly profitable imported pickup trucks, as Reported noted.

Takahide Kiuchi, executive economist at Nomura Research Institute, estimated in a recent report that 25% tariffs on autos and auto parts could push down Japan's GDP by as much as 0.2% over two years.

Planned reciprocal tariffs on a wider range of products could also affect Japan.

While Japan's average applied tariff rate is among the lowest in the world, non-tariff barriers, such as safety regulations, could come under increased scrutiny.

Trump pressed Japanese Prime Minister Shigeru Ishiba at their first White House summit this month to tackle Japan's $68.5bn annual trade surplus.

January's trade figures showed total exports rose 7.2% year-on-year, less than a median market forecast for a 7.9% increase and following a 2.8% rise in December.

Exports to the U.S. climbed 8.1% thanks to upbeat auto sales, as well as a weaker yen that boosted the value of exports.

Those to China dropped 6.2% from a year earlier, dragged down by a decline in shipments of chipmaking equipment.

Imports grew 16.7% in January from a year earlier, compared with market forecasts for a 9.7% increase.

As a result, Japan ran a trade deficit of 2.759tr yen ($18.2bn) compared with the forecast of a deficit of 2.1tr yen.

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