Key View
- We expect Japan’s trade surplus with the US is unlikely to turn into a deficit because US exports to Japan would have to increase dramatically—an outcome that appears improbable.
- Increasing US LNG exports to Japan will not significantly alter the trade balance due to time lags, declining Japanese demand, and pricing disadvantages of US LNG.
- More fundamentally, the US trade deficit reflects higher Japanese savings at home and investment in the US due to its higher growth outlook. Tariffs are unlikely to offer a long-term solution.
To be clear, we do not take US President Trump’s position that a trade deficit is necessarily a problem. That said, his clear desire to narrow the bilateral goods trade deficit with Japan is worth addressing. Trump has not explicitly stated his goal for the U.S.-Japan trade balance, but it is reasonable to assume that he would want to eliminate the trade deficit by the end of his second term. Given Japan’s USD68.5bn trade surplus with the U.S. in 2024, achieving balance would require either a sharp reduction in Japanese exports to the U.S. or a significant increase in U.S. exports to Japan.
In recent years, former President Donald Trump consistently emphasized the need to address the United States’ trade deficits with various countries, with Japan among them. Despite these efforts, achieving a trade surplus with Japan remains an unlikely outcome. The intricate economic relationship between the two nations is shaped by strong Japanese exports, particularly in automobiles and electronics, which continue to dominate the trade landscape.
Japan’s robust manufacturing sector and technological expertise have cemented its exports as highly competitive on the global stage. This enduring strength in sectors like automotive and technology means the U.S. remains compelled to rely on Japanese goods, further widening the trade gap. While the U.S. does export to Japan—with significant contributions from agricultural products and aircraft—these are not sufficient to offset the scale of imports from Japan.
Efforts to recalibrate trade relations, such as negotiating new trade deals or imposing tariffs, have shown limited success in reversing the deficit. The complexity of global supply chains and existing multinational corporate dependencies render a sudden shift towards a U.S. trade surplus with Japan impractical. Such dynamics suggest that, despite ambitions, Trump’s goals remain elusive in the face of entrenched economic realities.
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