How to Deal with U.S. Tariffs: Don’t Confuse Emergency Measures with Basic Policy

Editorial

14:17 JST, April 16, 2025

In response to the high tariff policy of the administration of U.S. President Donald Trump, the Japanese government and ruling parties have begun to consider economic measures in a full-fledged manner.

The postwar international order is now undergoing major changes. It is important to deal with the issue by distinguishing between measures that are needed for the present and a medium- to long-term strategy.

The U.S. government’s reciprocal tariffs are certain to deal a major blow to the global economy, including Japan. Households are struggling with their budgets due to prolonged high prices. Given this current situation, it can be said to be quite natural for the government and ruling parties to hurriedly implement economic measures.

However, questions cannot be dispelled regarding the floated proposal of providing cash benefits of around ¥30,000 to ¥50,000 per person as a specific measure.

In addition, there are calls within the ruling parties for a temporary reduction in the consumption tax rate targeting foodstuffs. The Japan Innovation Party and the Democratic Party for the People are also calling for a consumption tax rate cut.

The negative effects of the tariffs imposed by Trump will only become apparent from now on. Now is the time to scrutinize the future outlook and decide on support measures and their scale.

It is likely that the tariff negotiations between Japan and the United States that will begin this week will have rough going. Japan must map out medium- to long-term support measures for companies to strengthen its bargaining power.

It is also vital for the Japanese government to develop other markets than the United States, such as Europe and Southeast Asia, so that Japanese companies do not have to be overly dependent on the United States. It would be useful for the government to help them rebuild supply chains with subsidies and other forms of support.

Political parties should refrain from competing over lavish handouts with an eye on the next House of Councillors election, under the pretext of dealing with the U.S. high tariff policy. In particular, the government and ruling parties, which are responsible for managing the administration, must exercise restraint.

Making changes to the consumption tax system as a temporary measure to deal with tariffs and high prices should be avoided, as the consumption tax is an essential part of national finances. They should not confuse emergency measures with the nation’s basic policy.

Consumption tax revenue is about ¥24 trillion, money that is required by law to be used to cover four social security costs: pensions, nursing care, medical care, and support for children and child rearing. A tax rate cut could lead directly to a reduction in social security services.

Some opposition parties have proposed that a cut in the consumption tax rate could be a two-year temporary measure. But, given the political schedule of major national elections being repeated every two or three years, it would be extremely difficult to raise it again.

On the subject of immediate measures against high prices, one idea would be for the government to subsidize allowances that companies provide to their employees as an anti-inflation measure, as well as electricity and gas bills. In addition, it would also be advisable for the government to consider giving more tax incentives to companies that raise wages.

(From The Yomiuri Shimbun, April 16, 2025)