Japan’s export growth cooled in March as Donald Trump’s tariff campaign began to impact trade flows, starting with steep levies on steel and aluminium.

Exports by value rose 3.9% from a year earlier, driven by cars and chip-making machinery, but missed the expected 4.4% rise. Imports increased 2%, led by medical goods, below the 3.1% forecast.

Despite the slower export pace, Japan maintained a trade surplus of ¥544.1 billion ($3.8 billion), supporting the economy as domestic consumption remains weak under inflationary pressure. However, the outlook is clouded by escalating US trade measures and retaliatory actions from other countries.

Japan’s trade surplus with the US rose for a third month to ¥847 billion. However, concerns are growing that Japanese companies may cut shipments to the US, especially after reports of Jaguar and Audi halting exports. A 25% US tariff on steel and aluminium took effect in March, followed by a similar duty on cars in early April.

Formal talks between Japan’s trade chief Ryosei Akazawa and US counterpart Scott Bessent began this week, with Japan still seeking tariff relief. Trump briefly joined the discussions, having paused a 24% tariff plan for three months. Still, Japan faces a 10% baseline levy.

Japan’s exports to the US rose just 3.1% in March, down sharply from 10.5% in February. Shipments to China fell 4.8%, and to Europe dropped 1.1%. Japan, unlike others, has chosen not to retaliate.

Analysts warn that Japanese car exports to the US could fall further in April. The yen averaged 149.55 to the dollar in March, slightly weaker than a year ago. While currency issues were expected to come up in trade talks, Akazawa said they weren’t discussed — despite Trump’s past criticism of Japan’s weaker yen boosting exports.

The export slowdown reflects business caution amid global uncertainty — a troubling sign for an economy heavily reliant on external demand. Japan saw modest growth in late 2024, but with weak consumer spending and fragile global markets, economists expect a sharper slowdown in early 2025.

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