A containership berthed in Tokyo. (Koji Sasahara/Associated Press)
President Donald Trump’s tariff campaign is likely to worsen inflation and raise the bar for Japanese companies to invest in the U.S., defying the president’s aim to lure investment and revive American manufacturing, according to the chair of the Japan External Trade Organization.
Higher tariffs will raise the cost of doing business in the U.S. with more expensive materials and products, while the president’s crackdown on immigrants is also likely to worsen a labor shortage and boost labor costs, according to Norihiko Ishiguro, JETRO’s chair.
“The cost of materials and other things will increase significantly which won’t make the business environment good,” Ishiguro said in an interview with Bloomberg on March 18. Referring to Trump’s crackdown on foreign workers, he added “in our interviews with companies based in the U.S., we found some were worried that some of their workers might disappear.”
Despite Tokyo’s pleas for exemptions, Trump’s higher tariffs on steel and aluminum started hitting Japan last week and announcements are expected on new reciprocal and auto levies on April 2.
President Donald Trump speaks with Japanese Prime Minister Shigeru Ishiba in the Oval Office on Feb. 7. (Alex Brandon/AP)
“There is no doubt that Trump’s tariffs will undermine a fair and free trade order based on rules, and in particular, the automobile tariff will have a significant impact on the Japanese economy,” said Ishiguro, a former official from Japan’s Ministry of Economy, Trade and Industry.
During his meeting with Trump in February, Japanese Prime Minister Shigeru Ishiba pledged to boost Japan’s overall investment in the U.S. to $1 trillion. Japan has held the largest pile of foreign direct investment in the U.S. for the last five years, with about $783 billion in 2023. That still hasn’t helped the country secure exemptions from Trump.
Unlike European nations and China, Japan likely won’t take retaliatory measures against the U.S. partly because of Tokyo’s reliance on Washington for security matters, Ishiguro said. He declined to elaborate on what additional proposals the Japanese government should make to Trump in order to dodge his tariffs or minimize their impact.
A consultation service set up at JETRO’s headquarters in February has received about 300 inquiries so far from companies seeking information about Trump’s tariffs, according to Ishiguro. Companies are weighing options on how to respond, as any solution won’t be as simple as moving all of their manufacturing bases to the U.S., he said.
“Adjusting supply chains is quite a big deal,” he said, referring to Japanese automakers. “It takes at least two years to make changes. So companies are doing some mental gymnastics and seeing how things will pan out because Trump’s announcements keep changing constantly.”
The U.S. pivot toward protectionism comes as Japan also aims to boost the total value of foreign direct investment into Japan to 100 trillion yen ($671 billion) by 2030, from roughly 50.5 trillion yen in 2023. The recent gains have been partly driven by investments by foreign chipmakers like Micron Technology Inc., which Japan has subsidized.
While Trump no longer provides subsidies for semiconductor makers under the CHIPS Act, potentially dampening U.S. chipmakers’ appetite to invest abroad, Ishiguro said Japan should keep providing money to some extent to attract foreign top technology companies.
“When compared to the U.S., Japan’s policymaking is clearly stable,” Ishiguro said. The shifts in U.S. policy “could be a tailwind for Japan.”