Japan-U.S. Tariff Negotiations Make Progress: How to Overcome the Pressure of Additional 50% Tariffs

1. Introduction: Why "Tariffs" Are Resurfacing Now

Amid global economic instability due to inflation and geopolitical risks, the U.S.'s increasing protectionist tariffs are imposing heavy burdens on its allies, including Japan. The "Reciprocal Tariffs" introduced in April 2025 add up to 50% on automobiles and 25% on steel and aluminum, significantly undermining the international competitiveness of Japanese companies. For Japan's export-dependent economy, this issue is estimated to have a greater impact than currency intervention.

2. Overview of the 5th Japan-U.S. Tariff Talks

On June 7, the 5th round of talks held in Washington, D.C., was attended by Japan's Economic Revitalization Minister Ryosei Akazawa, U.S. Treasury Secretary Scott Besant, and Commerce Secretary Howard Lutnick. Although Akazawa reported "some progress," the specific agreement details were kept confidential. This meeting is likely the last face-to-face negotiation before the G7 Summit, with negotiations accelerating under a deadline.

3. Numerical Impact of Current Tariffs

• Of the approximately $38 billion in annual exports to the U.S., automotive-related products account for about 55%.

• If the 50% tariff continues, the actual cost per vehicle will increase by an average of $2,200.

• This could potentially reduce Japan's overall GDP by 0.3 percentage points.

• The effect is comparable to the revenue pressure caused by a 1 yen appreciation of the yen.

  These are estimated values based on calculations by the Ministry of Economy, Trade and Industry and private think tanks, and if tariffs are eliminated, a GDP boost of about 0.2 percentage points is expected.

4. The Triple Whammy Facing the Automotive Industry and Solutions

1. Decline in Price Competitiveness: Market share in the U.S. has decreased by 1.8 percentage points over the past year.

2. Supply Chain Restructuring Costs: Additional investment in local assembly is required.

3. Compound Risk with Currency Volatility: The yen-dollar exchange rate amplifies the impact of tariffs.

   As a solution, Japan has proposed "expanding EV design centers in the U.S." and "joint ventures with U.S. component companies," indicating a distribution of benefits to the U.S. industry.

5. Steel, Aluminum, and Semiconductors—Ripple Effects on the Materials Industry

Steel and aluminum are subject to a 25% additional tariff, forcing Japanese manufacturers to change their supply sources for high-strength steel and anodized materials. Furthermore, Japan's proposal to "purchase large quantities of U.S.-made semiconductors" during negotiations has taken on the aspect of a "horizontal barter" affecting everything from the materials industry to semiconductor equipment. In the long term, this could lead to strengthened Japan-U.S. defense and semiconductor alliances.

6. U.S. Political and Economic Circumstances: Elections and Industrial Policy

President Trump justifies the tariffs under the banner of "restoring American manufacturing jobs." With an eye on the 2026 presidential election, there is a need to appeal to the support base in the Rust Belt states.On the other hand, there are strong concerns from the business community about "inducing inflation," and within the administration, the Ministry of Finance and the Ministry of Commerce are looking for compromises. In discussions with Mr. Akazawa, the U.S. side emphasized "strengthening the supply chain for domestically produced EV batteries" as a key item.

7. Japan's Negotiation Strategy: Concession Cards and Red Lines

• Additional Orders for Defense Equipment(Aegis System, Fighter Jet Parts)

• Expansion of Agricultural Import Quotas(Beef, Oranges, etc.)

• Acceptance of U.S.-style Automobile Safety Standards

• Joint Fund for Semiconductor and AI Research

  However,the permanent abolition of automobile tariffsis a non-negotiable "red line." The government, industry, and labor unions are united in aiming for an agreement document stating "gradual abolition but ultimately to zero."

8. Scenarios at the G7 Summit: Winning Strategies and Risks

9. Market Perspective: Stock Prices, Exchange Rates, and Supply Chains

Following reports of progress in negotiations, the Tokyo Stock Exchange Automobile Index rose by +2.4% compared to the previous day, and the exchange rate temporarily appreciated to 148.90 yen to the dollar. Component manufacturers have begun reviewing relocation investments, and logistics companies are considering expanding warehouses in the NAFTA region. In the semiconductor sector, there is also an accelerated movement to attract joint venture lines with U.S. companies.

10. Trends in Social Media and Public Opinion and Their Impact on Domestic Politics

On X (formerly Twitter), "#Japan-US Tariff Negotiations" temporarily trended at number one. Supporters welcomed the negotiations with comments like "Negotiation team, good job" and "Looking forward to zero automobile tax," while cautious voices criticized with concerns like "Too many concessions" and "Worries about abandoning agriculture." The ruling and opposition parties plan to hold intensive deliberations at the House of Representatives Economic and Industrial Committee on June 10, with the transparency of the negotiation process being a key issue.

11. Practical Advice for Companies and Investors

1. Recalculation of Price Simulations: Assuming three scenarios based on different tariff rates.

2. Diversification of Supply Chains: Considering the "NAFTA+1" route including Mexico and Canada.

3. Extension of Foreign Exchange Hedge Period: Recommending long-term hedging for 9 to 12 months until the conclusion of negotiations.

4. Establishment of a Policy Watch System: Strengthening lobbying activities through industry associations.

12. Conclusion: The Intersection of Free Trade and Economic Security

This negotiation is not merely a "tariff reduction negotiation" but is evolving into a comprehensive negotiation concerning the reorganization of supply chains and economic security. On the international stage of the G7 Summit, the key will be how well Japan can balance its multifaceted interests. If a "hybrid agreement" can be achieved that maintains the principles of free trade while protecting domestic industries and strengthening the alliance with the United States, it is expected to have a positive ripple effect not only on Japan and the U.S. but also on the global economy.

Reference Article List

• InfoMoney "Negociador do Japão diz ter feito progresso em discussões tarifárias com os EUA"

• Reuters "Japan trade negotiator Akazawa says he made progress in US tariff talks"

• Kyodo News "Japan calls for tariff rethink in talks with U.S. commerce chief"

• Reuters "Japan proposes to buy U.S. chip products in tariff talks, Asahi says"

• RTHK "'Progress made' in Japan-US tariff talks"