Japan's economy is in for a big "Trump Shock" if Donald Trump returns to the White House. Delicate global supply chains and demand for Japanese exports will both be seriously disrupted by his plan to impose an across-the-board 10% tariff on all imports and 60% on imports from China. At the same time, Trump's inflationary policies-- additional big tax cuts and these tariffs--will compel the Federal Reserve to impose higher interest rates than it now intends. That, in turn, will put more downward pressure on the yen.

 

            How big a shock depends on how much of Trump's talk would become reality. Moreover, Joe Biden's departure makes the election outcome uncertain.

 

            But here's what we know. Japan has a very brittle economy that overreacts to external shocks, sometimes even more than to purely domestic shocks like the March 2011 catastrophe. As a result, Japan has suffered stop-go growth for the past three decades, suffering three five-year bouts of zero growth since the 1990s in response to the Asia financial crisis, then the global financial crisis, and finally Covid/Ukraine.  Hence, the Trump Shock could set off a worse-than-expected result. For example, Japan's exports to China depend far more on China's exports to the US and on China's internal economic growth.

 

            Japanese leaders who contend that, as a businessman, Trump will be concerned with economic growth, misread him.

 

For details, see https://richardkatz.substack.com/p/japans-trump-economy-shock-if-he

 

Richard Katz

The Contest for Japan's Economic Future