15% U.S. Tariffs on Japan: Make Agreement a Starting Point for New Economic Development / Quickly Stabilize Administration after PM Resigns

Editorial

15:42 JST, July 24, 2025

Negotiations over the high tariff policy, which had been the biggest issue between Japan and the United States, have been settled. The agreement can be praised for having eliminated uncertainty about the future, and the content is acceptable to Japan.

It is hoped that Japan will take this agreement as an opportunity to strengthen the cooperative relationship between the two countries, and to use it together as a starting point for new growth for the Japanese economy.

This may be a major achievement for Prime Minister Shigeru Ishiba, who will be stepping down soon. Under the new power balance in the Diet, the ruling and opposition parties will have a heavy responsibility to devise economic policies aimed at bringing the economy out of its prolonged stagnation.

Huge blow averted

U.S. President Donald Trump announced through social media that an agreement has been reached on tariff negotiations with Japan. The rate of “reciprocal tariffs” on Japan will be lowered from 25% to 15%.

Also, additional tariffs on imported automobiles, which Japan had been demanding that Washington reduce as the highest priority, will be halved from 25% to 12.5%. Combined with the preexisting 2.5% tariff rate, the total tariff rate will be 15%.

Japan’s annual exports to the United States amount to about ¥21 trillion, making the United States the largest export destination for Japan. The figure accounts for about 20% of Japan’s total exports.

A high tariff of 25% would have dealt a heavy blow. Considering the technological prowess and competitiveness of Japanese companies, it can be said that the 15% rate was finally set at a level to which Japan will be able to adapt.

The fact that Japan won a concession to lower tariffs on automobiles from the current 25% is also significant. This is because Trump has been advocating the return of manufacturing industries to the United States and the creation of jobs, showing a particularly strong attachment to tariffs on automobiles, which are a leading U.S. manufacturing industry.

Automobiles are a key industry for Japan. Including related companies, the industry supports about 5.5 million jobs and is the backbone of the Japanese economy. Japan exports about 1.4 million units a year to the United States, accounting for about 30% of Japan’s U.S.-bound exports in terms of value. The industry also leads the way in raising wages and has a significant influence on the Japanese economy.

The tariff rate on automobiles may be a result of the Japanese government having persistently continued talks toward a comprehensive agreement as a nonnegotiable matter. This may also serve as a model for other countries in their negotiations.

If the high tariff policy accelerates the trend of high prices in the United States, it is conceivable that Trump will move to modify the policy in the future.

In April this year, the Trump administration implemented reciprocal tariffs, the most comprehensive high-tariff policy in its second term.

Due partly to turmoil in the financial markets, the administration has repeatedly postponed the imposition of the additional tariffs and held trade negotiations with other countries. However, only four countries, including Britain and Vietnam, have been able to reach agreements.

Trump evaluated the agreement by calling it “perhaps the largest Deal ever made,” stating that Japan would invest $550 billion (about ¥80 trillion) into the United States, among other elements. Imports of U.S. rice into Japan will also be expanded.

With the Aug. 1 deadline for negotiations looming, Trump may have wanted to show off the results of the agreement at an early stage.

Consider steps to strengthen economy

The Japan-U.S. alliance is becoming even more important amid the increasingly severe international situation. It would have been difficult to work to strengthen the unity of the alliance as long as the issue of high tariffs dragged on. It is hoped that the agreement will lead to the deepening of Japan-U.S. relations.

How to deal with China, which has been strengthening its hegemonic moves, from the perspective of economic security is a major concern shared by Japan and the United States.

Japan has discussed with the United States such topics as cooperative moves in the shipbuilding field, including the joint development and production of icebreakers, as well as the establishment of supply chains for semiconductors. They have also discussed rare earths, which are indispensable for the production of military equipment. It will become important for the two countries to develop together through new industrial collaboration.

While the imminent tariff issues have come to a pause, it is important to use this opportunity to also examine the foundations for the growth of the Japanese economy. To this end, it will be necessary to develop markets in emerging and developing countries in Asia, Africa and elsewhere, and reduce Japan’s dependence on the United States.

The United States has played a core role in the postwar international economic order.

But Trump thinks that the United States has been overburdened economically and militarily, leading to the hollowing out of the manufacturing sector in his country. It is believed that he sees tariffs, exchange rates and security issues as a single topic, and adheres strongly to a strategy to reduce the burden on the United States.

Importance of free trade

Japan should play a core role in protecting free trade in close cooperation with parties such as the European Union and other Asian countries. To this end, it is essential for Japan to enhance its negotiating power.

Ishiba is set to step down following the conclusion of the Japan-U.S. talks.

The ruling parties suffered a crushing defeat in the upper house election following last year’s House of Representatives election. Despite this, Ishiba initially announced his intention to stay in office, probably because he wanted to decide whether to step down after discerning the success or failure of the Japan-U.S. tariff talks.

With the ruling parties being a minority in both houses of the Diet, political chaos will likely continue. The hope is that the next president of the ruling Liberal Democratic Party will urge the opposition parties to broaden the framework for a coalition government and work to quickly stabilize the political situation.

(From The Yomiuri Shimbun, July 24, 2025)