Firm Heterogeneity in Responses to “Trump Tariffs 2.0”: Evidence from Japanese manufacturing firms

This paper uses an original firm survey conducted in the context of “Trump Tariffs 2.0” to document how firm attributes are associated with (i) the incidence and intensity of tariff impacts and (ii) the predictability and content of firms’ responses. Three findings emerge. First, reported impacts are widespread among exporters to the U.S. and are particularly pronounced for firms engaged in related-party (intra-firm) exports to the U.S., consistent with the fixed nature of internal transactions and practical constraints related to rules of origin, pricing, and regulatory compliance. Moreover, even among firms with low direct exposure to North American exports, those located further upstream in supply chains tend to report larger impacts, suggesting supply-chain spillovers that are not captured by direct export measures alone. Second, responses are strongly associated with firm size (sales), and adjustment appears more advanced among large, high-productivity firms. Third, regarding response choices, firms with intra-firm exports to the U.S. show a stronger relative preference for localization through foreign direct investment (FDI), whereas arms-length exporters tend to favor price/cost adjustments; firms exporting to China and Asia are more likely to pursue portfolio rebalancing through third-country shifts (including deeper reorientation within the region). From a policy perspective, beyond broad-based mitigation, strengthening firms’ adaptive capacity—especially by easing fixed costs and organizational constraints faced by smaller firms—and expanding practical support for third-country expansion are warranted.