Trump’s Tariff Policies, Tariff Negotiations, and Their Implications – Part2

Objectives of Trump’s Tariff Policies and Differences from the First Administration

Hattori

Up to this point, we have briefly reviewed the status of the various arrangements concluded by the second Trump administration with different countries. Looking these “agreements,” it is clear that, even when focusing solely on U.S.-Japan relations, it is clear that negotiations and strategic positioning over trade issues have only just begun.
Next, let us examine the fundamentals. Could you give us a brief overview of what the Trump administration is seeking to achieve and its overall trade policy?

Kondo

Certainly. On January 20, 2025, the day of his inauguration, President Trump immediately issued the “America First Trade Policy” Memorandum. This memorandum essentially serves as a “catalog” of contemplated initiatives and measures, providing a comprehensive summary of the policies that the second administration intends to implement. In fact, a series of policies and measures based on this memorandum have been implemented at a fairly rapid pace.

Osawa

The memorandum is structured around three main pillars: (1) Addressing unfair and unbalanced trade, (2) economic and trade relations with the People’s Republic of China, and (3) additional economic security matters. It represents a comprehensive framework aimed at returning U.S.-centric industrial dominance, covering everything from tariff policies to export controls and supply chain reconfiguration.

First Pillar: Addressing Unfair and Unbalanced Trade

First Pillar: Addressing Unfair and Unbalanced Trade

Osawa

Let us examine the specific policies under each pillar. Mr. Kondo, what are the key points regarding “addressing unfair and unbalanced trade”?

Kondo

Yes. First, under the stated purpose of correcting the trade deficit, the Trump administration announced additional tariffs on a global scale, which have already been implemented as “reciprocal” tariffs. In addition, tariffs have been expressly positioned as a source of government revenue, and the establishment of an external revenue agency is under consideration. This represents a very hardline stance, in that tariffs themselves are being treated as a policy objective and a pillar of fiscal policy.

Osawa

I see. Another noteworthy measure is the abolition of the de minimis threshold for goods valued at US$ 800 or less, which is expected to impact cross-border e-commerce.

Kondo

Indeed. While this may seem inconsequential at first glance, the removal of this threshold has already commenced, and given the sheer volume of goods covered, the impact is expected to be significant.

Hattori

I was also concerned that the first pillar includes institutional reforms that would make it easier for the U.S. to impose anti-dumping duties and countervailing duties.

Kondo

Exactly. This is also an important development to monitor going forward, given the possibility that other countries could be added to the list of “non-market economy (NME) list,” which currently includes China and Vietnam. In addition, reforms could be implemented to further facilitate findings of dumping.

Hattori

Anti-dumping measures provide targeted relief to U.S. industries adversely affected by imports, as they can be initiated by petition by the affected industry to the U.S. government. For Japanese companies that export industrial products to the U.S. from their overseas facilities, this is a critical consideration. Although anti-dumping rules should be generally harmonized under the WTO, does this mean that countries will be able to interpret and apply them in ways that are more favorable to their own interests? I would like to see the Japanese government become more flexible and proactive in utilizing these traditional trade tools and in strengthening the relevant domestic frameworks.

Second Pillar: Economic and Trade Relations with China

Second Pillar: Economic and Trade Relations with China

Osawa

Next, let us turn to policies relating to China. During the first Trump administration, there was an economic agreement between the U.S. and China. Should we view the current measures as a continuation?

Kondo

In part, yes. Based on the assessment that China has not fulfilled its commitments under the agreement, the U.S. has initiated a review of the additional tariffs imposed under Section 301 of the Trade Act of 1974. These tariffs, which were originally imposed based on China’s forced technology transfer and intellectual property infringements, continued under the Biden administration as well.

Osawa

Negotiations with China are unlikely to proceed as smoothly as those with other countries, given China’s dominant position in rare earths and various other factors. In that context, is there anything else that merits consideration?

Kondo

Yes. For example, there is some consideration to revisiting China’s permanent normal trade relations (PNTR) status. This is a major issue affecting the treatment of China as a WTO member, and related legislation has already been introduced in the U.S. Congress.

Third pillar: Economic Security

Third pillar: Economic Security

Osawa

From an economic security perspective, what is the direction that has been established for trade policy?

Kondo

There are two main points. The first is the imposition of additional tariffs under “Section 232 of the Trade Expansion Act of 1962.” In fact, since the first Trump administration, investigations have been launched in connection with steel and aluminum, automobiles and auto parts, and more recently, semiconductors, pharmaceuticals, critical minerals, medium- and heavy-duty trucks, and commercial aircraft. The second is the imposition of additional tariffs under the International Emergency Economic Powers Act (IEEPA) of 1977, ostensibly as means of blocking the inflow of illegal immigrants and illicit drugs. These are described as comprehensive countermeasures against national security threats. However, the validity of IEEPA-based tariff measures is the subject of ongoing legal debate both domestically and internationally, and a U.S. federal court found such measures to be unlawful and voided them immediately. Accordingly, there is significant uncertainty in relation to their legal stability.

Osawa

If the U.S. Supreme Court were to hold that “reciprocal” tariffs are unlawful and invalid, the government could be required to return the substantial sums of tariff revenue it has collected, which could cause considerable disruption.

Kondo

I agree. While these points mainly concern additional tariffs, other measures, such as export controls, are also included in the policy agenda.

Osawa

Indeed. The comprehensive restructuring of the export control framework is also listed as an item. This is another area that must be closely monitored going forward, as it may affect companies’ export control systems.

Relationship with International Trade Rules

Relationship with International Trade Rules

Osawa

In a nutshell, how would you characterize the relationship between such unilateral U.S. policies and measures and international trade rules?

Kondo

The main issue is that these additional tariffs are not consistent with the WTO rules, specifically the principle that tariffs should not exceed the bound tariff rates and the most-favored-nation treatment principle, which requires equal treatment of all countries. However, the U.S. has intentionally rendered the WTO’s Appellate Body dysfunctional, resulting in a situation in which “disputes cannot be adjudicated.”

Hattori

The U.S. interprets the “national security exception” under Article XXI of the General Agreement on Tariffs and Trade (GATT) very broadly. Its position appears to be that, if the U.S. determines an issue to be related to national security, the basic tariff rules do not apply. The U.S. is unlikely to change its stance going forward. That said, now that negotiations have reached the stage where agreements are being reached, we may be moving beyond that phase and are entering the early stages of a new reconfigured international trade order.

Kondo

Since shortly after the first Trump administration took office, I have been involved in international trade dispute resolution within the government, and the trade policies and measures of the second administration are fundamentally different from those of the first in terms of scale, scope, and pace.

Hattori

Given these circumstances, it will become increasingly important for Japanese companies engaged in international business to position trade issues more squarely at the center of their management strategy and to monitor issues in real time through both top-down corporate governance and bottom-up input from operational levels, so as to respond to the rapidly evolving trade environment.

Key Takeaways for Japanese Companies

Hattori

Now that we have reviewed the Trump administration’s tariff policies and the course of tariff negotiations, let us discuss what Japanese companies should learn from these experiences.

Kondo

Here, I would like to take a step back from bilateral issues between Japan and the U.S. and consider the situation from two perspectives. The first is the overwhelming negotiating advantage of the U.S., as illustrated by the agreement between the U.S. and the EU, and the significant impact this can have on the policies and frameworks of countries and regions that make concessions.

Osawa

The agreement between the U.S. and the EU has faced intense criticism within the EU.

Kondo

I believe this represents a critical inflection point in history that cannot be overlooked. The main criticism directed at the EU institutions is the asymmetrical nature of the agreement. While the U.S. will maintain additional tariffs of 15%, the EU has committed to reduce tariffs on U.S. products in key sectors to effectively zero. Furthermore, the EU has committed to purchasing US$750 billion worth of strategic goods, such as energy and semiconductors, from the U.S. over the next three years, and to making US$600 billion in private investments in the U.S. The EU has been criticized for acquiescing without meaningful opposition in the face of the U.S.’s threat to substantially increase tariffs.

Osawa

Notably, under the recent Japan-U.S. “agreement,” Japan did not commit to reducing tariffs on U.S. products. In that sense, Japan stood firm. On the other hand, the U.S.-EU agreement is also a framework agreement, with the details to be negotiated in the future, and the full extent of the concessions to be made by the EU remains undetermined. This follows the same structure as the Japan-U.S. “agreement.”

Kondo

Yes. Apart from the asymmetry in the agreement, another issue is that the EU’s commitment to purchase U.S. products is not aligned with actual supply and demand conditions in the energy sector and is also incompatible with Europe’s carbon reduction policies. Moreover, the decisions made by the EU, including the promised investments, may potentially exceed the formal authority of the European Commission. Nevertheless, the EU had no alternative but to accept such terms.

Osawa

In that sense, it is possible that the EU’s globally recognized environmental and energy policies could be impacted going forward.

Kondo

Yes, and similarly, various domestic and regional policies affecting key industries in each country that has engaged in a trade deal with the U.S. will inevitably be impacted.

Osawa

Incidentally, what accounts for the extent of the EU concessions?

Kondo

The EU side is seeking to rationalize these concessions, stating that it needed to avoid the severe economic consequences that would result from an escalating trade war with the U.S. Furthermore, given that the security threat from Russia has become a geopolitical reality, the EU needed to ensure continued U.S. involvement in dealing with Russia. This is the rationale provided by the EU.

Osawa

Japan faces similar concerns in that it would like to avoid a trade war and maintain U.S. involvement in its national security. In this respect, the U.S. may become increasingly confident in bilateral negotiations.

Hattori

Given these takeaways from the additional tariffs and negotiations, what is the other perspective Japanese companies should be considering?

Kondo

The second perspective I would like to emphasize is that, from a broader standpoint, there are signs that we are entering a new era in which the international trade order is clearly changing. Here again, I will refer to the U.S. and the EU. The agreement reached between President Trump and European Commission President von der Leyen has been called the beginning of the “Turnberry system,” named after the Scottish location where the agreement was reached. All stakeholders in Japan, including the Japanese government, companies, and citizens, must clearly understand the current situation and urgently develop countermeasures and responses.

Osawa

Specifically, what do you mean?

Kondo

On August 7, U.S. Trade Representative Greer published an extremely interesting op-ed piece in the New York Times. Greer wrote, “Indeed, by using a mix of tariffs and deals for foreign market access and investment, the U.S. has laid the foundation for a new global trading order.” After pointing out that, until now, the only way to remove tariffs and non-tariff barriers imposed by other countries was to lower one’s own tariffs or eliminate non-tariff barriers to secure concessions from the other country, he stated that “President Trump has flipped the script on this: Now, we are systematically eliminating these barriers abroad while ensuring sufficient tariff protection at home.” In other words, he negatively characterized the existing trade order and justified the use of additional tariff and transactional deal-making.

Osawa

Ambassador Greer also categorically stated that the WTO is an “untenable and unsustainable” organization.

Kondo

That may be the case from the U.S. perspective, but these are impactful words. Of course, this is merely the comment of a single U.S. cabinet member under the Republican Trump administration, and therefore, should not be overemphasized. Nevertheless, I believe it was the first time that the U.S. had made such explicit statements rejecting the prevailing international trade system, after creating its own concrete precedent for new trade negotiations on the international stage.

Osawa

Free trade is an extremely important foundation for the international specialization of labor and the stability of cross-border corporate businesses. By clearly stating that it will take a different, independent path, the U.S. has destabilized the business environment, thereby introducing new risks.

Kondo

The positive values of liberal trade principles and the WTO framework that supports them will continue to be important for countries and regions other than the U.S. to maintain through strong cooperation going forward. The fact that the U.S. did not allow time for coordinating responses among was a factor that enabled it to gain an advantage in the negotiations. The issue now is how to maintain these values without the U.S. while addressing the various challenges currently facing international trade. It is fair to say that we have reached an inflection point where governments and businesses must collaborate strategically, take practical action, and pursue both reform and preservation.

Hattori

Judging from President Trump’s approach to policy announcements and negotiations this time, it appears that we need to be cautious not just trade and tariffs but also in other areas involving the U.S.

Osawa

Precisely. What this round of tariff policy and negotiations has highlighted for me is that it is extremely difficult to predict both the direction and content of the Trump administration’s policies in advance, and even for announced policies, there are many cases where they are easily changed or withdrawn depending on the circumstances. Given these trends, Japanese companies should proceed on the basis that “announced policies may not necessarily continue long term” not only in relation to trade and tariffs but also in relation to other areas. In particular, when implementing medium- to long-term responses to U.S. policies that require substantial investment or costs, careful consideration must be given to the possibility that the underlying policy could be withdrawn or changed in the short term.

Hattori

I see. The unpredictability of policy measures presents a challenging situation for Japanese companies.

Osawa

Indeed. However, if companies neglect information gathering and analysis simply because “predictions are difficult,” this could become problematic in relation to the duty of care as a prudent director. Recently, the necessity of corporate intelligence functions has been emphasized, but at the very least, companies must ensure that sufficient information is gathered and analyzed so that directors can be protected by the business judgment rule.

Hattori

In this roundtable discussion, we have gained insights on how Japanese companies should approach the changing global economic landscape, focusing on Trump’s tariff policies. Japanese companies generally tend to be cautious in considering and making decisions regarding change. As our discussion has shown, there have been cases where even for “announced policies, there are many cases where they are easily changed or withdrawn depending on the circumstances.” The question is whether this phenomenon is unique to the U.S., particularly under the Trump administration, or whether it is affecting other countries to varying degrees. As we enter an era of rapid change, it appears that, in addition to caution, flexibility and speed have become important factors in an “acting first” mindset. This includes determining how much information to collect, what risks to accept, and establishing clear criteria for what risks not to accept.