Japan’s Economy Contracts Sharply: Trump Tariffs Add to the Pressure

Japan’s Economy Takes a Hit in First Quarter

Japan’s economy contracted more sharply than anticipated in the first quarter of 2025, raising concerns about its future growth. Official data released on Friday revealed that Japan’s Gross Domestic Product (GDP) shrank by 0.2% compared to the previous quarter, marking the first quarterly decline since early 2024.

This contraction, however, is even more worrisome when compared to the same quarter last year. The Japanese economy actually shrank by 0.7%, significantly exceeding the predicted 0.2% drop.

Exports Slump, Tariffs Loom

One of the main culprits behind this economic slowdown is a decline in exports, which are crucial to Japan’s economy. Demand for Japanese exports was already waning even before US President Donald Trump announced his controversial tariffs.

In April, the US imposed a 24% tariff on Japanese goods, including an additional 25% levy on cars. This is particularly damaging for Japan’s auto industry, as the US is its largest market. These tariffs were initially set to go into effect in July unless a trade deal could be negotiated, adding further uncertainty to the situation.

Uncertainty and Economic Vulnerability

Experts warn that the Trump tariffs are likely to exacerbate the economic slowdown in Japan. Ryutaro Kono, the chief economist at BNP Paribas, told AFP, “Uncertainty is greatly heightened by the Trump tariffs, and it is likely that the economic slowdown trend will become clearer from (the second quarter) onward.”

Negotiations for a trade deal with the US have been challenging, with policymakers in Tokyo struggling to keep up with President Trump’s ever-changing stance.

Japan’s economy has been facing challenges for some time now, grappling with an aging population that puts a strain on welfare spending while simultaneously shrinking the labor force and consumer demand.

The Bank of Japan had been trying to stimulate the economy with negative interest rates, but began gradually raising rates last year. The combination of these factors has left Japan’s economy vulnerable to shocks, such as the impact of Trump’s tariffs.

Recession Looms?

Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, told Reuters, “The data may lead to growing calls for bigger fiscal spending” adding that “the possibility of the economy entering a recession cannot be ruled out, depending on the degree of downward pressure caused by the tariff issue.”