Japan exports fall most in four years as tariff pain deepens

TOKYO - Japan’s exports sustained their steepest drop in more than four years as US tariffs continued to weigh on global commerce, clouding the outlook for economic growth at a time when personal spending remains unsteady.

Exports fell 2.6 per cent in value in July from a year earlier, sliding more than the median forecast of a 2.1 per cent decline, the Ministry of Finance reported on Aug 20.

The downturn, led by cars, auto parts and steel, was the biggest since February 2021.

Export volumes rose by 1.2 per cent, suggesting exporters are continuing to absorb US tariff costs by cutting selling prices to preserve market share.

Imports fell 7.5 per cent and the trade balance flipped to a deficit of 117.5 billion yen (S$1 billion). 

“Car shipments to the US have started to decline in volume, suggesting that the impact of tariffs is finally starting to show,” said Mr Taro Saito, head of economic research at NLI Research Institute.

“In the US, prices of Japanese exports began rising around June or July, so we’re now seeing the effects of Japanese goods gradually losing their price competitiveness.”

The latest slide in exports strengthen fears over whether Japan’s economy can continue to expand as US President Donald Trump’s tariffs weigh on global trade.

While Japan eked out growth in the last five quarters despite weakness in domestic consumption, further drops in exports could drag the economy into reverse.

Exports to the US dropped by 10.1 per cent in July from a year earlier, with shipments of vehicles and auto parts plunging 28.4 per cent and 17.4 per cent, respectively.

Shipments to the US of semiconductor manufacturing equipment slid 31.3 per cent.

In April, the US imposed a 25 per cent tariff on imports of Japanese cars and auto parts, and a 10 per cent duty on most other goods.

A tariff on imports of steel was doubled to 50 per cent in early June.

The tariffs on cars and broad-based goods will be assessed at 15 per cent under a trade deal reached in late July, although it may take some time for that deal to be implemented. Written documentation on the trade deals agreed to with Japan and South Korea are “weeks away”, said US Commerce Secretary Howard Lutnick on Aug 19 in an interview with CNBC.

NLI Research Institute’s Mr Saito said: “The timing for implementing lower auto tariffs was never clearly set. If they’re reduced some time in September, which is the general consensus, that would come as a relief, but if they don’t go down, the negative impact will be even greater.”

He added that even if the across-the-board tariff comes down from the level imposed from April, US tariffs would still be more than 10 per cent higher than they were at the beginning of 2025, so the impact will continue to reverberate.

Beyond the US, exports to China fell 3.5 per cent, while shipments to Europe declined 3.4 per cent.

Looking ahead, economists largely expect Japanese exports to stagnate as firms adjust to the new trade environment.

The Japanese government earlier in August slashed its economic outlook, citing the rising toll from US trade measures.

Mounting profit pressures may also limit companies’ ability to continue raising wages, potentially threatening Japan’s fragile virtuous circle of wage and price growth.

“The economy will likely contract in the third quarter due to a decline in exports,” Mr Saito said.

“As for the tariff-related uncertainty that (Bank of Japan) governor (Kazuo) Ueda mentioned, I think it will take quite awhile before the fog clears.” BLOOMBERG