Japan’s export growth slowed in March, rising by 3.9% compared to the same month last year, missing expectations of a 4.5% increase. This follows a significant rise of 11.4% in February, showing a slowdown in the pace of expansion. Despite this, exports to certain regions, such as the Middle East, saw impressive growth, underscoring Japan’s evolving trade landscape.
March Export Performance: Middle East Leads, U.S. Sees Moderate Growth
The highest growth in March exports came from the Middle East, with a notable 17.1% increase. Exports to the U.S., Japan’s second-largest trading partner, rose by 3.1%. This performance indicates the continued importance of the U.S. in Japan’s export strategy, even as the global trade environment faces uncertainties brought on by President Donald Trump’s tariffs. The data for March, however, does not fully reflect the impact of the new tariffs, which have added complexity to Japan’s trading environment.
Impact of U.S. Tariffs and Ongoing Negotiations
As President Trump announced 25% tariffs on auto imports effective April 3, along with tariffs on steel and aluminum, Japan’s export market faced potential turbulence. However, Trump temporarily suspended his 24% reciprocal tariffs on Japan for 90 days, keeping a baseline tariff of 10%. These developments are taking place as Japan and the U.S. engage in ongoing trade negotiations, with Trump stating on his Truth Social platform that progress was being made, and that the discussions would focus on tariffs, military support costs, and “trade fairness.”
Japan’s Auto Industry and Steel Exports Under Scrutiny
Japan is a major player in the global auto industry, with Japanese car brands making up four of the top eight best-selling brands in the U.S., including the top-selling Toyota. Automobiles are Japan’s largest export to the U.S., comprising 28.3% of all shipments in 2024. As the U.S. is a significant market for Japanese auto exports, any shifts in tariff policy could have significant implications for Japan’s trade balance. Additionally, Japan ranked as the sixth-largest steel exporter to the U.S. in 2024, another key sector vulnerable to shifting tariff policies.
Japan’s Trade Deficit and The Changing Global Landscape
Despite the growth in exports, Japan’s trade deficit narrowed to 544.1 billion yen in March, though it was larger than the 485.3 billion yen expected by analysts. The deficit for February was 590.5 billion yen. While Japan continues to rely heavily on exports, experts like Jesper Koll, director at Monex Group, suggest that Japan is no longer the export powerhouse it once was. Koll pointed out that China’s increasing exports are impacting Japan’s market share, especially as the U.S.-China trade war intensifies, which could push Japan further down in global trade rankings.
The rise of China-made goods replacing Japanese exports, particularly in the U.S. market, could have long-term repercussions for Japan’s trade performance. As the U.S.-China tensions persist, Japan may find itself in a more challenging position, with its exports facing tougher competition from Chinese products.
