Japan’s export growth slows as U.S. tariffs hammer shipments

Japan's export growth decelerated last month, falling short of what economists expected as trade tensions with the United States intensified. Exports rose 5.1 percent year-on-year in December to reach 10.41 trillion yen, according to government data released Thursday. Analysts had predicted growth would hold steady at 6.1 percent, matching November's pace. The shortfall marks a shift in momentum for Japan's export-driven economy, which had seen four consecutive months of increases heading into the final month of 2025.

The slowdown was driven almost entirely by collapsing demand from the United States. Japanese shipments to America plunged 11.1 percent in December compared with a year earlier, a dramatic reversal from November's 8.8 percent increase. Automobiles, auto parts, and chip-making equipment bore the brunt of the decline, all hit by tariffs imposed under a trade deal reached between Tokyo and Washington in September.

The United States has maintained a 15 percent tariff on most Japanese imports, a level that remains higher than pre-2025 rates but represents a reduction from the 25 percent tariff initially proposed by the Trump administration. Japanese automakers have been particularly hard hit, as the sector faces the full weight of these duties on vehicles shipped across the Pacific.

Background

Japan's trade relationship with the United States has deteriorated significantly over the past year. For the full year 2025, Japan logged a 2.65 trillion yen trade deficit, marking the fifth consecutive year the country has posted a yearly shortfall. This represents a dramatic shift for an economy that historically ran trade surpluses.

The broader trade picture shows Japan's exports to the United States fell 4.1 percent for the entire year, the first annual decline in five years. This weakness contributed to a 12.6 percent shrinkage in Japan's trade surplus with Washington, which fell to 7.52 trillion yen in 2025.

Beyond the U.S. situation, Japan faces other headwinds. China's recent restrictions on rare earth exports, announced after Japanese Prime Minister Sanae Takaichi suggested Japan might respond militarily to Chinese moves on Taiwan, threaten to disrupt Japanese manufacturing supply chains. The rare earth controls have raised concerns about the availability of critical materials for electronics and other advanced industries.

Key Details

Mixed performance across markets

While exports to the United States deteriorated, shipments to other regions showed strength. Exports to China grew 5.6 percent in December, while shipments to Hong Kong jumped 31.1 percent. Taiwan saw a 20.7 percent increase, Vietnam 13.7 percent, and Russia 27.3 percent. Sales to the Middle East climbed 18.8 percent and to South Africa 21.9 percent.

However, not all Asian markets performed well. Exports to South Korea dropped 1.9 percent and to Australia fell 10.2 percent. The uneven regional performance reflects how tariffs and trade tensions are reshaping Japan's export patterns.

Annual trade deficit shrinks but remains

While Japan recorded its fifth consecutive yearly trade deficit in 2025, the deficit did narrow substantially. The 2.65 trillion yen shortfall was nearly 53 percent smaller than 2024's deficit, offering some relief to policymakers concerned about the country's external accounts.

For the full year, exports rose just 3.1 percent while imports increased only 0.3 percent. This shows that weak import growth, rather than strong export performance, helped reduce the overall deficit.

In December alone, Japan managed a monthly trade surplus of 105.69 billion yen, with exports climbing 5.1 percent and imports growing 5.3 percent. The monthly surplus was 12 percent smaller than December 2024, however, indicating ongoing pressure.

"Exports to the U.S. plunged 11.1% from a year earlier in December, weighed down by declines in cars, auto parts, and chip-making equipment" – Japanese government trade data

What This Means

The December export slowdown signals that American tariffs are beginning to bite harder on Japan's economy. While the initial impact of the September trade deal appeared manageable, the accumulating effect of 15 percent duties is now visible in trade flows. Japanese companies cannot easily absorb these costs or redirect shipments elsewhere, given how deeply integrated U.S.-Japan trade relationships are.

For Japanese automakers, the situation is particularly challenging. The sector remains dependent on U.S. market access, yet tariffs make vehicles more expensive for American consumers. Some companies may consider shifting production to the United States to avoid tariffs, a costly and time-consuming undertaking.

The strength of exports to Asia and other regions provides some counterbalance but cannot fully offset weakness in the American market. Japan's economy remains dependent on global trade, and trade friction with its largest developed market partner poses risks to growth.

Policymakers in Tokyo are watching these numbers closely as Prime Minister Takaichi prepares for snap elections next month. The public has grown restless over rising prices and stagnant wages, and trade tensions could become a campaign issue. Meanwhile, the stock market has remained resilient, with the Nikkei hitting new records despite economic headwinds.

The coming months will reveal whether December's slowdown represents a temporary dip or the start of a more sustained decline in Japanese exports. Much depends on whether trade tensions with the United States stabilize or intensify further.