How should Japan respond to Trump’s tariffs?

■Trump’s decision to impose reciprocal tariffs
The Trump Administration has finally implemented reciprocal tariffs (90 days suspension with the exception of China). We at the Japan Research Institute forecast a 1.1 percentage point reduction in global economic growth if all the duties are enacted. While we had previously anticipated the global growth rate this year to just surpass 3% – the threshold that distinguishes growth and stagnation – the fallout from the levies has significantly increased the risk of a global recession.

■The importance of making a deal with Trump while avoiding a trade war
Some countries have hinted at imposing their own retaliatory tariffs in response to the Trump Administration’s actions. While they are no doubt simply reflecting public sentiment in taking a strong stance, unending trade wars should be avoided. This is because they risk splitting the world economy into blocks and considerably depressing global growth. Trade confrontation could also very well lead to actual confrontation between nations. Japan, which has actively promoted free trade through mechanisms such as the CPTPP, must take the lead in preventing a trade war spiral.

The Japanese government also needs to maintain friendly relations with the U.S. as it is not only its main trading partner but also a close ally. Skillfully striking a deal with the Trump Administration is key. Stephen Miran, chair of the Council of Economic Advisers and widely considered the mind behind Trump’s economic policies, called for greater burden-sharing among U.S. allies in a paper published last year. A promising avenue for Japan would be to leverage this and deepen security ties with Washington without causing alarm in neighboring countries. In short, Tokyo must resolutely protect its interests while offering U.S. negotiators various options and avoiding head-on confrontation.

■Japan should urgently diversify its trading partners
Still, the reality is that the United States has shifted towards an "America First" stance, taking a hard line with even its own allies. The Japanese government must confront this fact and reduce the economy’s exposure to Washington’s actions by diversifying its trade relations as much as possible. It should also strengthen cooperation, not only with like-minded partners such as Europe and Australia, but equally with nations in the increasingly influential Global South. To this end, the Japanese government should urgently work on building a trade system with a truly global outlook.

Going forward, Japanese policymakers should craft a nuanced economic and diplomatic strategy that both diversifies trade away from the U.S. and tries to find compromise with it.

*This report is intended solely for informational purposes and should not be interpreted as an inducement to trade in any way. All information in this report is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will JRI, its officers or employees and its interviewee be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any damages, even if we are advised of the possibility of such damages. JRI reserves the right to suspend operation of, or change the contents of, the report at any time without prior notification. JRI is not obliged to alter or update the information in the report, including without limitation any projection or other forward looking statement contained therein.