Japan, a close ally and economic partner of the United States, was set to be hit hard by President Trump’s Liberation Day tariffs, when they were paused for 90 days. The 24 per cent tariff on all Japanese imports into the United States now sit at 10 per cent. Japanese cars and auto parts will still incur a 25 per cent tariff, a big blow to the Japanese economy. The policy uncertainty is the biggest immediate risk to the global economy but the direct and secondary effects of Trump’s tariffs on China and the threat to the global trading system are a much bigger threat to global prosperity, including Japan.
What happens now depends on how Japan and the rest of the world respond.
The biggest risk is not from the direct effects from US tariffs but from global contagion. Trump’s tariffs, even after the pause, are higher than the Smoot-Hawley tariff of 1930 — but those tariffs were not high by US standards in the 19th century. It was the retaliatory cycle of tariffs and currency competition in the 1930s that deepened and prolonged the Great Depression and caused the world to fracture into blocs. The Japanese economy outperformed most of the rest of the world in the Great Depression with expansionary macroeconomic policies and an export-led growth strategy.
The first step is to avoid retaliating against US tariffs. China has retaliated as have Canada and the European Union. They feel they have to retaliate to avoid looking politically weak, but that just increases the economic damage to their own economies and those elsewhere. Retaliating, even if targeted, for leverage against Trump’s United States, is high risk with very uncertain reward.
Many will try to negotiate with Trump but that risks demonstrating to the bully susceptibility to coercion. Prime Minister Ishiba managed to secure a ministerial-level negotiation with the United States on a call to President Trump. There is no basis for sensible negotiations without a clear conception of what Japan’s broader interests are. That would spell appeasement to the United States without benefit to Japan or global welfare. There is no guarantee that any deal struck with this White House, even if it were possible to strike one, would be faithfully honoured given the United States has in the past weeks effectively invalidated every free trade agreement it has ever signed and promised to honour.
Japan’s best course is to lead a global effort to protect the multilateral trading system. The United States is taking itself out of the global trading system but the world does not need to let that take the whole system down and create more widespread economic disorder. The multilateral trading system with the WTO at its centre may be on the ropes but it’s still standing
Collapse of confidence in the rules-based multilateral trading system would undo the economic interdependencies in East Asia that have brought development, prosperity, stability and security to the region. A Chinese economy that does not have the constraints of those rules and markets will be one with more risks and Southeast Asia will be hurt the most, risking ASEAN economic and political security.
Japan has agency and the ability to mobilise a coalition in Northeast Asia and Southeast Asia that can lead to a different outcome. The world is not ready for Chinese leadership except in broader frameworks in which it is constrained to international norms. Japan can with others provide that framework. Japan has a track record through the conclusion of CPTPP after Trump left the original TPP on his first day in his first term.
An obvious platform from which to mobilise collective action in Asia is through East Asia’s Regional Comprehensive Economic Partnership (RCEP) agreement. The Foreign Ministers of Japan, China and South Korea met only a few days before Trump’s Liberation Day tariffs were announced to agree to deepen trade cooperation and to boost RCEP. An ASEAN initiative that includes Australia, New Zealand and all of Northeast Asia. It comprises about 30 per cent of global trade, GDP and population. The United States now only accounts for 11 per cent of global trade.
Australia and others in Southeast Asia have declared they will not retaliate. The Australian Government’s independent Productivity Commission modelled global tariff contagion in 2017 in response to Trump’s threats in his first term as president. Global tariffs increasing by 15 percentage points would have led global GDP to fall by 2.9 per cent. Japan’s GDP by 1.2 per cent and the GDP of ASEAN’s five largest economies would have contracted by 8.5 per cent. And these are conservative estimates now.
The modeling shows that if the RCEP members avoid retaliation even as the rest of the world raised tariffs, ASEAN’s economies would not contract and Japan’s economy would grow 0.5 per cent as trade among the dynamic Asian economies deepened.
In the face of global contagion, if RCEP members liberalised tariffs, ASEAN growth would be 2 per cent higher and Japan’s growth close to 1 per cent higher. That growth would be even higher if RCEP members reformed behind the border non-tariff measures.
New modelling is needed and underway. The results will be similar: holding the line will minimise damage and doing so collectively compounds the benefits and makes it politically easier. Reforming in the face of a collapsing global economy is the surest way through the Trump-induced crisis.
Japanese leadership can begin with connecting efforts to Malaysia, this year’s ASEAN chair, and Indonesia, which is Southeast Asia’s largest economy. Both are leading efforts in Southeast Asia to act together to avoid retaliation. Those efforts can be aligned with Australia, Europe and the rest of the world, minus the United States to protect the global trading system.
Opening up an accession process for CPTPP that is blocking all but Costa Rica right now while Indonesia, China and Taiwan are in the queue, and expanding RCEP, so long as countries sign up to its rules, will help encourage reform and buttress defence of the trading system.
Very few countries can mobilise collective action in these circumstances. Japan is one that can and has the influence to find willing partners that want to avoid a ‘might is right’ world in favour of a rules-based order.
>> Japanese translation
*Original in English.
April 25, 2025 Nihon Keizai Shimbun
