Japan Faces Trade Deficit Amidst Declining Exports and Tariffs

In a recent development, Japan is grappling with a significant trade deficit of 2.2 trillion yen (approximately $15 billion) for the first six months of 2025, according to data released by the government on Thursday. This downturn is largely attributed to the imposition of tariffs by President Donald Trump, which have adversely affected exports, particularly in the automotive sector.

In June, Japan experienced a 0.5% decline in exports compared to the same month last year, with vehicle shipments being hit with a 25% tariff. Though Trump has delayed the implementation of this tariff until August 1 to facilitate negotiations, no consensus has been reached thus far. In June, exports reached nearly 9.2 trillion yen ($62 billion), marking the second consecutive month of decreases, while imports slightly rose by 0.2% to 9 trillion yen ($61 billion), resulting in a modest trade surplus of 153 billion yen (over $1 billion).

Notably, exports from Japan to the United States dropped 11% in June, with auto exports experiencing a significant decline of 25%. Moreover, shipments to China fell by almost 5%, while exports to Mexico—a crucial hub for Japanese automotive assembly in North America—decreased by close to 20%. Over the first half of the year, Japan's total exports reached 53.4 trillion yen ($360 billion), reflecting a 3.6% increase, whereas imports rose by 1.3% to 55.6 trillion yen ($375 billion).

Japan and the United States have been engaged in ongoing trade discussions, emphasizing Japan's status as an important ally of the U.S. In these negotiations, President Trump has expressed particular concern over rice imports, a sector that has traditionally been shielded from foreign competition to protect Japan's food security. It is estimated that Japan imports more than 300,000 tons of U.S. rice annually, with some of this amount allocated for animal feed.

In a related context, Japan is set to hold elections for its Upper House of Parliament on Sunday. Given the declining public approval ratings for Prime Minister Shigeru Ishiba’s administration, the ruling Liberal Democratic Party, which is conservative and pro-business, risks losing its majority unless it successfully partners with another coalition. Additionally, the economy contracted by an annual rate of 0.7% in the first quarter of the year, a trend linked to decreasing export values.