Efficacy of Japan's Policy Options against Trump’s Tariffs

Nobuhiro Hosoe ()
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Nobuhiro Hosoe: National Graduate Institute for Policy Studies, Tokyo, Japan

No 25-03, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: This study analyzes the impact of additional tariffs and reciprocal tariffs on US imports, which were announced immediately after the inauguration of the second term of the Trump administration, using a computable general equilibrium model. Our simulations show that China, which is subject to high tariffs, and Canada and Mexico, whose supply chains are closely connected by trade, suffer large economic welfare losses, while other countries and regions do not suffer much from Trump’s tariffs. Welfare in the US varies greatly depending on whether tariff revenues are spent on government consumption or returned to households, and in the latter case, the US would gain in welfare. Considering the countermeasures that Japan can take against Trump’s tariffs, Japan could maximize its welfare (or minimize its losses due to Trump’s tariffs) by imposing retaliatory tariffs of about 15% on the premise that tariff revenues would be returned to households, but only marginally. Rather than raising tariffs, it would be of great welfare benefit for Japan to eliminate tariffs on imports from the US, even if it is unilateral. Also, Japan’s retaliatory tariffs would inflict only small losses on the US, which would be far from sufficient for motivating the US to withdraw the additional or reciprocal tariffs.

Pages: 38 pages
Date: 2025-05
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Persistent link: https://EconPapers.repec.org/RePEc:ngi:dpaper:25-03

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