Trump’s Tariff Policies, Tariff Negotiations, and Their Implications – Part1

Background and Outcome of Japan-U.S. Tariff Negotiations

Hattori

Today, we would like to discuss the developments surrounding Trump’s tariff regime, which are having a significant impact not only on Japan but also on the global economy, international business activities, and international trade order. We would particularly like to focus on the Japan-U.S. tariff negotiations, which have been our most pressing concern, review the developments to date, and discuss the differences between the Japan-U.S. “agreement.” Thank you for joining us.
First, what are your views on Trump’s decisive leadership and speed with which he is implementing his tariff policies?

Kondo

Looking back, even during the 2024 presidential campaign, Trump stated that “the most beautiful word in my dictionary is ‘tariff’” and that “tariffs are a tool for bringing money [into the U.S.] and for attracting companies [to the U.S].” In that sense, his philosophy has remained consistent, and he has implemented it swiftly and decisively. In his presidential campaign manifesto, “Agenda 47,” he also referred to a universal baseline tariff applicable worldwide.

Osawa

The universal baseline tariff essentially overlaps with the “reciprocal” tariffs that are currently under discussion. Since his presidential election, President Trump has repeatedly stated his intention to impose a universal tariff of 10–20% on imports from all countries. Even then, he also made public remarks indicating that he would increase tariffs on all products from China to as much as 10% or even 60%.

Kondo

Even prior to taking office, he had mentioned imposing a 25% tariff on Mexico and Canada as a means of preventing illegal immigration and the inflow of fentanyl and other synthetic drugs. In relation to Brazil and India, countries on which President Trump has recently intensified pressure, I recall that, even before assuming office, he had stated via social media and other channels his intention to impose “100% additional tariffs” on the BRICS countries.

Osawa

In that sense, it can be said that he has delivered on his promises, and what was anticipated has, in fact, come to pass. However, when it came to actually implementing the additional tariffs, there was considerable confusion due to a lack of clear criteria for applicable tariff rates and cases where announced rates were promptly revised.

Hattori

Since President Trump’s Inauguration on January 20, 2025, there have been several distinct phases of additional tariffs. From Japan’s perspective, would you say that the situation began to escalate rapidly around April?

Kondo

Yes, from early February to early March, when the so-called “Trump 2.0 additional tariffs” first began to be imposed, the primary focus was on measures targeting China, Canada, and Mexico. Up to that point, even in the context of specific-sector tariffs, the main focus had been on expanding existing measures, such as increasing to 25% the Section 232 additional tariffs under the Trade Expansion Act of 1962 on steel and aluminum, which had been imposed since the Trump 1.0 administration, and removing exemptions.

Osawa

Beginning around April 2, when specific rates for the “reciprocal” tariff measures were officially announced, the situation began to rapidly change. On the following day (April 3), the 25% Section 232 additional tariffs were imposed on passenger cars and light trucks. On April 5, the baseline 10% “reciprocal” tariff began to be applied worldwide. From this point on, specific concerns began to emerge about the adverse effects not only on Japan’s core export industry to the U.S., the automotive sector, but also on exports to the U.S. more broadly. It was, I believe, an inflection point.

Kondo

The Japanese government sent Minister Akazawa to the U.S. for the first time on April 16 to begin negotiations seeking reductions in “reciprocal” tariffs and the elimination of tariffs on automobiles. Thereafter, until July 22, when Minister Akazawa met directly with President Trump and reached a verbal agreement, he traveled to the U.S. a total of eight times, engaging in continued negotiations, including by telephone, until the Japan-U.S. “agreement” was reached on July 22.

Hattori

During this period, President Trump stated on July 1 that “it is doubtful that a trade agreement with Japan will be reached,” and suggested increasing additional tariffs to a total of 30-35%, thereby increasing pressure on Japan. These pressure tactics to elicit concessions have become a hallmark of President Trump’s negotiating approach.

Osawa

By that point, Minister Akazawa had already traveled to the U.S. approximately seven times, which demonstrates how difficult negotiations had become.

Kondo

As an additional pressure tactic, between July 7 and 12, the U.S. sent a series of letters to Japan and other countries stating that “reciprocal” tariffs would be increased effective August 1. The fact that the tariff increases were intentionally not standardized across countries and that countries were not treated equally appears to reflect a deliberate strategy by the U.S. to conduct simultaneous multilateral negotiations.

Hattori

Let us now turn to the results of the negotiations. During the negotiations, the results achieved by other countries also influenced the course of the negotiations between Japan and the U.S. Only two countries had reportedly entered into an agreement by the original negotiation deadline of July 9.

Timeline of “Agreements” with Each Country

(*)For items subject to an existing tariff rate under the most-favored-nation (MFN) clause that is higher than 15%, the “reciprocal” tariff is eliminated. For items subject to an existing MFN tariff rate of 15% or less, the “reciprocal” tariff is calculated by subtracting the existing MFN tariff rate from 15%.

Kondo

The status of countries reported to have entered into agreements is generally as shown in the table above.

Hattori

There are some countries where negotiations have not been finalized, and even higher tariffs are being imposed. However, countries in the so-called “agreement” group, including Japan, have entered a new phase. From the perspective of Japanese companies, what are the key points to focus on at this juncture?

Kondo

For Japan, the most important point is the substantive content of the agreement itself. Some countries, including Japan, have entered into “agreements” without a written document. Therefore, discrepancies in the content of these agreements have become a contentious issue.
The U.S.-Japan “agreement” is similar to the “framework agreements” that the U.S. has entered into with the United Kingdom, China, Vietnam, Indonesia, and other countries, in that it lacks the detailed provisions usually found in formal trade agreements.

Osawa

In particular, the U.S. announcement that the 15% “reciprocal” tariff on Japanese products would be imposed “in addition to” existing tariffs sparked criticism in Japan. Following Minister Akazawa’s visit to the U.S., the U.S. government revised the Executive Order and the Federal Register. Nevertheless, it should be borne in mind that there may be other differences in the parties’ understanding of the “agreement.”

Kondo

In relation to the Japan-U.S. “agreement,” the decision to cap “reciprocal” tariffs on Japanese products and additional tariffs on automobiles and automobile parts at 15%, despite the absence of a written agreement, is being viewed as a positive development. Conversely, concerns remain in relation to discrepancies between the Japanese and the U.S. announcements, including the following:

Osawa

As we can see, there are differences in how the scale of investment amounts are described. Overall, the U.S. announcement tends to include more specific references to the quantities and measures to which Japan has purportedly committed, which is another difference from the Japanese announcement. In addition, where the U.S. announcement uses broad terms, such as “[l]ongstanding restrictions on U.S. cars and trucks will be lifted” or “leveling the playing field for American producers,” it is expected that details will be finalized in the future. Accordingly, these are points that Japanese companies should monitor closely.