Japan’s Exports Rise at a Faster Clip With Trump Tariffs Looming

(Bloomberg) -- Japan’s exports rose at a faster clip in January as businesses ramped up orders just as US President Donald Trump unleashed a barrage of protectionist policies expected to take effect in coming months.

Exports measured by value increased 7.2% from a year earlier led by shipments of cars and ships, the Ministry of Finance reported Wednesday. Exports rose broadly in line with expectations. Imports surged 16.7% led by communication machinery and computers, and beat the median estimate. Japan’s trade balance swung back into the red, with a deficit of ¥2.76 trillion ($18.2 billion), the largest in two years.

By region, shipments to the US rose 8.1%, while those to China fell 6.2%. Exports to Europe declined 15.1%. 

The global trade outlook is increasingly uncertain. Trump said Tuesday he would likely impose tariffs on automobile, semiconductor and pharmaceutical imports of around 25%, with an announcement coming as soon as April 2. For drugs and chips, Trump suggested that the levies will become significantly higher than 25% over the course of a year.

“I think there was a rush of demand for exports. Shipments clearly grew in the first half of the month before the Trump administration began,” said Takeshi Minami, economist at Norinchukin Research Institute. “I don’t think this kind of growth matches demand in the US, so it’s quite possible that exports will decline down the road.”

Trump’s fresh tariffs against China already prompted retaliatory levies from Beijing, and the president has also threatened a range of measures against other nations, including 25% levies on steel and aluminum imports that will take effect in March and reciprocal tariffs on numerous trading partners.

Japan, whose two biggest trading partners are the US and China, is bracing for the potential impact and trying to minimize fallout. Tokyo has asked Trump to exclude it from the steel and aluminum steps as well as the reciprocal duties while it also seeks details regarding his other levy plans.

Exports to China declined for a second month as the lunar new year holidays came in January this year, as opposed to last year when they were in February. Going forward, the renewed trade war between Beijing and Washington is likely to influence Japan’s trade as well. 

Japan’s longstanding trade surplus with the US continues to risk the ire of Trump, who favors using levies to close trade gaps with other nations. Japan’s trade surplus with the US was ¥477 billion in January. Auto exports to the US surged 21.8% in the month.

Car exports are a key component for Japan’s economy, especially at a time when inflation seems to be keeping a lid on domestic consumption. Japan could suffer both from the direct hit of tariffs on its shipments as well as an indirect hit from duties rising on imports originating in Mexico and Canada, which both host factories owned by Japanese carmakers.

The tariff threats continue to mount even after Prime Minister Shigeru Ishiba promised during his first summit with Trump earlier this month that Japanese firms would boost investment into the US. Data from the Japan Automobile Manufacturers Association show that in 2023, Japanese carmakers made 3.3 million cars in the US, more than twice the 1.5 million cars they exported to the country. 

The yen averaged 157.20 per dollar in January, 9.2% weaker than a year earlier, the Finance Ministry said. In the past, Trump criticized the weaker yen for fueling the US trade deficit with Japan. Since the start of his second term in late January, the president hasn’t raised the issue — even when he met Ishiba face to face in Washington.

The cheap yen is a problem for Japanese consumers and businesses as it raises the costs of imported energy and food. Japan’s currency has stayed weak even as the Bank of Japan has rolled back easy monetary settings over the last year with a series of gradual interest rate hikes. The government has added cash support for low-income households to help them cope with the cost-of-living crunch.

“If the US really imposes 25% tariffs on automobiles on April 2, I think the impact on the Japanese economy will be significant,” said Norinchukin’s Minami. “The Trump administration is calling for more factories to be built in the US, which could cause Japan’s production bases to decrease.”

(Updates with economist comments, additional background.)

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