On July 8, US President Trump announced that starting August 1, a 25% tariff would be imposed on all Japanese goods exported to the United States, far exceeding the previous tax scope targeting specific industries such as automobiles. In response to this "ultimatum," Japanese Prime Minister Ishiba Shoichi convened an emergency cabinet meeting the same day, firmly stating that Japan would not easily compromise and vowed to continue negotiations to safeguard national interests.
This tariff escalation directly hits the heart of Japan's economy—automotive industry accounts for over 30% of exports to the US, with Toyota warning that its net profit for fiscal year 2025 could shrink by 34.9%, with losses reaching 180 billion yen in April-May. With the House of Councillors election approaching on July 20, the support rate of the Ishiba cabinet has dropped to 25.4%, and the contradiction between agricultural protection policies and industrial export interests is further intensifying.
What are the driving factors behind the Ishiba cabinet's "firm stance" toward the US? What is the actual impact of this round of tariff shocks on Japan's economy? When the largest trading partner and strategic ally becomes the biggest source of economic risk, how should Japan adjust its development path?
To address these questions, Observers.net connected with Cai Chang, assistant researcher at the Northeast Asia Research Center of Shanghai University of Political Science and Law, to analyze the current crisis and challenges facing the Ishiba cabinet under the US tariff shock.
[Interview/Observer.net, Zheng Lehuan]
Observer.net: The Trump administration announced that starting August 1, a 25% tariff will be imposed on all Japanese goods exported to the US (not in addition to existing steel and aluminum tariffs). The automotive industry accounts for more than 30% of Japan's exports to the US, and Toyota has warned that its net profit for fiscal year 2025 may shrink by 34.9%, with losses reaching 180 billion yen from April to May. Goldman Sachs had previously predicted that car tariffs would only drag down GDP by 0.1 percentage points, but now the scope has expanded to "all goods." How should we assess the scale of this impact on Japan?
Cai Chang: This time, the US expanding the tariff to "all goods" is not just a simple trade friction for Japan, but a systematic pressure test on its economic structure, with deep and multi-layered impacts.
Currently, the direct economic impact on Japan can be said to exceed expectations. Goldman Sachs' prediction in March based on a single car tariff has completely failed because when the tariff covers all goods, the impact will be magnified by several orders of magnitude. As the leader driving Japan's economy, the auto industry's sharp profit decline is just the tip of the iceberg. More seriously, the impact will quickly spread along the supply chain to all industries dependent on exports to the US, especially small and medium-sized enterprises that provide support to large companies, which are the capillaries of Japan's economy but have very weak risk resistance and may face survival crises.
From a social perspective, the erosion of corporate profits will inevitably be transmitted to the people. We can foresee that companies will cut investments, freeze hiring, lower wages, and even experience mass layoffs. According to estimates by a private Japanese think tank, Japan's manufacturing sector may face a reduction of 590,000 jobs in five years. Japan's total population is currently 123 million, and the number of births in 2024 was only 680,000. For a society already facing deflationary pressures and real wage negative growth, this is like adding insult to injury. For example, the price of rice in Japan is about 4,000 yen for 5kg (approximately RMB 200). An increase in rice prices will lead to increases in food, rent, and oil prices, while the rise in salaries lags far behind the rise in prices. This will directly exacerbate social tensions and undermine public confidence in the future.
Additionally, this incident has exposed the inherent vulnerability of Japan's post-war highly export-dependent model and its deep integration with the American single-market economy. It forces Japan to painfully reflect: When the largest trading partner and strategic ally becomes the biggest source of economic risk, how should the country adjust its future development path? This includes whether Japanese companies will accelerate investment in the US, and whether the Japanese government will introduce domestic supporting policies, among other issues.
In summary, I believe this is not just a matter of economic loss, but also a fundamental question for Japan's national development strategy.
Observer.net: Since April this year, the US has unilaterally implemented tariff measures against multiple countries. As an important ally and trading partner, Japan has engaged in multiple rounds of negotiations with the US but has not yet achieved substantial breakthroughs. On July 6, Japanese Prime Minister Ishiba Shoichi stated that Japan will not easily compromise on the tariff issue. Usually maintaining a relatively flexible style in its diplomacy toward the US, why did Japan take a "strong stance" on the tariff issue this time?
Cai Chang: The rare "firmness" displayed by Japan is not a sudden impulse, but an inevitable choice resulting from the intersection of three factors: domestic politics, economic bottom lines, and foreign policy strategies, reflecting a profound adjustment in Japan's diplomacy toward the US.
Firstly, it is an "economic bottom line" that cannot be compromised. In 2024, Japan's exports to the US reached 21.3 trillion yen, including 6 trillion yen in automobile exports and 1.2 trillion yen in auto parts exports, accounting for 34% of total exports to the US. The automotive industry is Japan's industrial lifeline and the "heart" of its economy. The US demands Japan to open up an annual 770,000-ton rice tariff-free quota, equivalent to destroying its half-century-old agricultural protection system.
At the same time, traditional industries represented by agriculture are the "foundation of votes" for the Liberal Democratic Party's rule. These two fields are core interests that Japan cannot easily give up. If the country cannot defend its economic lifeline and ruling foundation, any cabinet will lose its legitimacy.
Secondly, it is the "election strategy" driven by domestic politics—the most direct reason. Akazawa Ryohei once said, "Creating a safe working environment for farmers is important for the government and the ruling coalition. If they make concessions on agriculture, they might lose votes and affect the stability of the regime." Therefore, the government has taken a firm stance on rice imports to win the support of farmers and voters.
A survey conducted by Kyodo News on July 5-6 showed that the support rate for the Ishiba cabinet was 25.4%, a drop of 7.0 percentage points from the previous survey, and the disapproval rate was 62.6%. The support rate for the Ishiba cabinet has fallen into the "danger zone," with the House of Councillors election approaching on July 20. In any country, a strong external stance is an effective means to consolidate public sentiment and shift domestic contradictions. Compromising with the US at this time would be political suicide. Therefore, firmness is first a "gesture" serving domestic political needs.
Thirdly, it is a long-term pursuit of "strategic autonomy." This tariff incident is a painful "wake-up call," making Japan deeply realize the fragility of tying its national destiny entirely to the US. The unilateralism of the Trump administration is actually eroding the trust of allies. Therefore, Japan's firmness is also an expression of its strategic pursuit of "autonomy," aiming to show the US and the world that Japan has its own national interests and will no longer unconditionally serve as a vassal of the US, thereby pursuing a more equal alliance relationship.
The US trade deficit includes 295.1 billion USD with China, 236.7 billion USD with the EU, and 68.7 billion USD, 66.2 billion USD, and 45.6 billion USD respectively with Japan, South Korea, and India.
Observer.net: Some views suggest that Japan still has countermeasures, such as holding a "financial nuclear weapon" of 1.13 trillion USD in US debt; or lobbying the US Congress with the argument that "producing 3.3 million cars in the US and creating 2.3 million jobs." How should we assess the available countermeasures Japan currently has? If exemption is not achieved before August, will shifting to the CPTPP multilateral framework or jointly building a rare earth supply chain with China and South Korea become one of Japan's possible countermeasures?
Cai Chang: Japan does indeed hold some countermeasures, but the actual effectiveness of each card must be objectively evaluated, and the real effectiveness of Japan's current countermeasures is relatively limited.
Firstly, US debt is a "nuclear deterrent" rather than a "conventional weapon." Japan holds 1.13 trillion USD in US debt, which sounds like a "financial nuclear weapon," but selling it in large quantities would trigger a global financial market tremor, causing the yen to rapidly appreciate, which would in turn severely damage Japan's exports, ultimately resulting in "killing 800 enemies, but losing 1,000 of your own," so it is extremely difficult to implement.
Secondly, investing in the US is an important lobbying leverage that can gain support from some forces within the US, but this is not a "one-sided constraint," especially considering that in the "America First" political atmosphere, this approach may be difficult to effectively influence the White House's decision.
On the other hand, I believe that Japan turning to CPTPP is an inevitable choice, but it is not a quick fix. CPTPP is a key platform dominated by Japan to offset the influence of the US. However, the combined market size of its member states is far less than that of the US, and it cannot fully compensate for the loss of exports to the US in the short term. Therefore, this move is beneficial for Japan's long-term strategic layout, but not a "quick fix" for addressing immediate crises.
Additionally, cooperating with China and South Korea to build a rare earth supply chain is an option with "high returns and high difficulty." From an economic rationality perspective, China, Japan, and South Korea are highly complementary in key industries such as rare earths. If they deepen cooperation, they can build a powerful supply chain system capable of countering the US—this is undoubtedly an effective path for Japan to achieve strategic autonomy. However, historical issues and the lack of geopolitical trust are major obstacles in front of the cooperation.
From China's perspective, Japan is at a crossroads of strategic choices. The greater the pressure from the US, the stronger Japan's motivation to look eastward. This provides us with a strategic opportunity to deepen regional cooperation, but pushing this process is destined to be long and arduous.
Observer.net: According to the latest survey by Kyodo News, only 20.5% of voters support the candidates of the ruling party's constituencies, and 49.9% hope that the ruling coalition's seats fall below half. The cabinet's support rate has plummeted to 25.4% (a drop of 7 percentage points), and the 20,000 yen cash subsidy promised by the LDP has been criticized as ineffective. Some views suggest that the failure of the G7 summit meeting between Japan and the US caused Ishiba to lose a key diplomatic advantage, thus using the "firm statement on the US" as a risk mitigation tool before the election. What do you think of this?
Cai Chang: I completely agree with this view. Ishiba's "firm statement" on the US is essentially a "political gamble" in a desperate situation to save the election campaign, a carefully calculated risk mitigation strategy.
On one hand, the cabinet's support rate has dropped to a freezing point of 25.4%, and economic policies such as the 20,000 yen cash subsidy have been criticized as ineffective, leading to widespread public discontent. In this context, showcasing a firm external posture can shift part of the public's dissatisfaction with the government's poor performance into a collective anger against external powers, trying to consolidate public sentiment and mitigate internal losses.
On the other hand, the failure to reach an agreement at the G7 summit was a missed opportunity for the Ishiba cabinet to gain "diplomatic points," a significant diplomatic failure. By making a higher-profile firm statement afterward, he tries to cover up the negative impression of "failed negotiations with the US" by adopting a "dare to say no to the US" posture, forcefully shaping a leader image that defends national dignity to gain electoral points.
However, this gamble carries high risks. Japanese voters are pragmatic, and compared to diplomatic slogans, they care more about inflation, wages, and other tangible interests. If the tariffs eventually take effect and the economy deteriorates, this "slogan-style firmness" will not only fail to gain points but may also face stronger backlash for failing to protect the people's interests.
On July 9, Ishiba Shoichi delivered a street speech in Funabashi City, Chiba Prefecture. Tokyo Sports
Observer.net: On July 20, Japan will hold a House of Councillors election. Agricultural protection policies are one of the core policies of the LDP. Although the US government hopes Japan will purchase a large amount of American agricultural products, for the LDP, sacrificing agricultural and forestry products to protect industrial exports is unacceptable. What is the logic behind this? Before the House of Councillors election, how should the Ishiba government balance the dual pressures of stabilizing the farmer base and avoiding a full-scale trade war?
Cai Chang: The LDP's insistence on "not sacrificing agriculture" is a political calculation to some extent, reflecting the operation logic behind Japanese politics: the weight of votes often outweighs economic considerations, with the core being to maintain ruling power.
First, the agricultural vote base is the "foundation of the LDP's rule." Japan's electoral system makes rural areas' votes more valuable. Although the population in rural districts is small, their collective mobilization capability is strong. Agricultural groups represented by the "Nohyō" (JA) have strong organizational mobilization capabilities, and have been the "iron vote base" of the LDP for decades. Agricultural protection policies are an important lever for the LDP to stabilize grassroots votes. Sacrificing agricultural interests equals digging its own grave, fundamentally shaking its ruling foundation.
Second, "not sacrificing agriculture" is also a negotiation strategy. By setting agriculture as a "non-negotiable red line," the Japanese government can raise the threshold for negotiations with the US, showing the US that its room for concession is extremely limited, thus creating more room to protect industrial interests such as automobiles.
Currently, in the critical period of two weeks before the election, the Ishiba government has adopted a balancing strategy of delay and division. Its balancing act lies in calming the inside, i.e., reassuring the farmers, the basic base, by loudly declaring "resolutely protecting" to stabilize votes; and maneuvering externally, i.e., adopting a "fight and negotiate" delaying tactic toward the US, showing a firm posture on one hand, and seeking even partial or temporary exemptions through multiple rounds of negotiations on the other, striving to avoid a full-scale trade war before the election. Its core goal is to defer the "hot potato" until after the election for a final decision.
Observer.net: The House of Councillors election is approaching, and the support rate of the Ishiba cabinet has dropped to 25.4%. The ruling coalition needs to win 50 seats to maintain a majority in the House of Councillors (with 75 non-renewable seats). If it fails to meet the target, Ishiba may resign or reorganize the alliance. Currently, there is rising inflation domestically, and the US government's tariff threat externally—considering the upcoming House of Councillors election, what do you think of the prospects of the Ishiba cabinet?
The change in the support rate of the Ishiba cabinet
Cai Chang: The prospects of the Ishiba cabinet are already precarious, and the House of Councillors election on July 20 will be the "judgment day" determining its survival. This round of the 27th House of Councillors election in Japan has 520 candidates competing for 125 seats. Currently, the LDP-Komeito ruling coalition has 141 seats in the House of Councillors, of which 75 are non-renewable seats. This means that in the 66 seats up for renewal, the LDP-Komeito coalition needs to secure 50 seats to maintain a majority in the House of Councillors.
However, the results of the recent Tokyo Metropolitan Assembly election have already sounded the alarm. The prospects for the LDP-Komeito coalition in this House of Councillors election are bleak, and there are two possible outcomes:
The first is a disastrous defeat, meaning the ruling coalition fails to maintain a majority in the House of Councillors. In that case, according to Japanese political conventions, Ishiba is likely to resign, triggering a new power struggle within the LDP, and Japan's political situation may again fall into chaos.
The second is a narrow victory, meaning the ruling coalition barely maintains a majority in the House of Councillors. Even if it barely passes, a "weak cabinet" will find it difficult to govern effectively and may fall in subsequent challenges.
However, regardless of Ishiba's personal political fate, this crisis as a major historical event will certainly have a profound impact on Japan's domestic and foreign policy directions. Domestically, "economic security" will become a core state policy. Any future Japanese government will elevate the diversification of supply chains and the self-sufficiency of key technologies to an unprecedented strategic height. Externally, Japan will accelerate its "strategic autonomy" steps. Although the foundation of the Japan-US alliance will not shake, Japan will invest more resources to deepen relations with Asian neighbors to hedge against the uncertainty brought by the US. A Japan that is more vigilant, more independent, and more focused on Asia may be gradually emerging from this crisis.
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