Japan suffers major trade deficit as auto exports plummet due to tariffs
- In May 2025, Japan's exports experienced a 1.7% decline year-on-year, with auto shipments to the U.S. dropping nearly 25%.
- Imports also decreased by 7.7%, indicating weakening domestic demand.
- The trade deficit reached 637.6 billion yen, or $4.4 billion, highlighting ongoing challenges in Japan's trade with the U.S.
Japan reported a significant decline in its exports in May 2025, largely attributed to a substantial drop in auto shipments to the United States. The Finance Ministry disclosed that exports fell 1.7% year-on-year. This decrease was primarily driven by a nearly 25% decline in auto exports to the U.S., a direct consequence of the higher tariffs imposed by U.S. President Donald Trump. Japan's imports also saw a notable decline, decreasing by 7.7% as domestic demand weakened, which was greater than the 2% fall experienced in April. The trade scenario resulted in a deficit of 637.6 billion yen, equivalent to approximately $4.4 billion, underscoring the financial challenges faced by Japan amid fluctuating international trade dynamics. As the trade deficit worsens, concerns grow over the impact of U.S. tariffs on the Japanese economy, particularly since the auto industry is a cornerstone of Japan's GDP and employment. Japanese Prime Minister Shigeru Ishiba, following a meeting with President Trump at the G7 summit, mentioned that no agreement had been reached regarding the tariffs. Trump has instituted a 25% additional tariff on Japanese automobiles, alongside a 24% tariff on other goods. The U.S. president hinted that these tariffs could increase further, intensifying uncertainty for Japanese manufacturers. The automotive sector is vital to Japan, with over a million vehicles exported to the U.S. annually. Major companies like Toyota and Honda manufacture vehicles not only in Japan but also in North America, contributing to local economies and employment. In response to the tariffs and trade challenges, Ishiba emphasized the strategic nature of U.S.-Japan relations, highlighting Japan's position as a key ally in defense and its commitment to protecting national interests in international trade. The ongoing tariff dispute raises questions about the future of the bilateral economic relationship and the potential for long-term repercussions on Japan's trading capabilities.