President Donald Trump’s tariff strategy seems to be yielding positive results in Japan. The country’s export to the U.S. has dwindled, prompting Japanese firms to ramp up production in their U.S.-based subsidiaries.
Japan's US Exports Drop, FDI Hits Record High
The export volume from Japan to the US has hit a four-year low, while the overall export numbers remain above the 2024 average, according to a report by Fortune. This shift in production has also led to a surge in foreign direct investment (FDI) from Japan into the U.S.
Japanese manufacturers' North American subsidiaries outpaced Japan's overall exports in Q2, with sales growing 6 percentage points faster. In July, Toyota's (NYSE:TM) U.S. output jumped 28.5% year-on-year, while production in Japan declined 5.5%.
Marcel Thieliant, the head of Asia-Pacific at Capital Economics, noted that the FDI from Japan to the U.S. is on track to reach a record high this year. The U.S. is expected to receive 47% of Japan’s total outbound FDI, a historic high.
Thieliant attributes this shift not only to Trump’s trade deal but also to the robust U.S. economy, which is outperforming Europe, a previously significant destination for Japan’s FDI. The report also indicates that, according to 2024 surveys, Japanese manufacturers with overseas subsidiaries had intended to increase production in the U.S.
"What is becoming increasingly clear, though, is that firms are responding to U.S. tariffs by stepping up production in their U.S. subsidiaries," he explained.
US-Japan $550 Billion Deal Sparks Debate Over Tariff Impact
The US and Japan reached a trade deal in July, lowering the tariff rate on Japan from 25% to 15%. In return, Japan agreed to invest $550 billion in key US industries. However, Wall Street has expressed skepticism about the realization of this investment, citing the legal uncertainty of Trump’s tariffs.
The shift in production and FDI from Japan to the US could have significant implications for both countries. The US and Japan have agreed to share the profits from the $550 billion tariff deal until the investment is recovered. This shift in production and investment could also impact the global supply chain and trade dynamics.
Toyota Sales Rise Despite Tariffs; US Labor Gaps Worry Ford
Despite the tariffs, Japanese automaker Toyota has seen an eight-month consecutive growth in sales, with a 13.6% surge in US sales driven by strong hybrid vehicle demand. This indicates that the trade dynamics between the US and Japan are evolving in response to the tariffs.
However, Ford (NYSE:F) CEO Jim Farley warned of severe labor shortages in the U.S., citing deficits of 600,000 factory workers, 500,000 construction workers, and a projected need for 400,000 auto technicians over the next three years. He also highlighted gaps in staffing for data centers and manufacturing, questioning how reshoring efforts can succeed without enough workers.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
