Despite new US tariffs, Japan remains key for East-West high-tech supply chains
14 April 2025
It was a strong Japan in 1987 that inspired Donald Trump’s fascination with tariffs. Back then, he wrote an open letter in national newspapers decrying what he saw as an unfair arrangement that had “moved Japan to the forefront of world economies”.[1] Trump, then a 41-year-old property developer, was alarmed by Japanese businessmen buying up prime real estate.[2] He argued that Japan’s economic rise had come at the expense of the US, including its military protection and trade imbalance, and it needed to pay a “tax”.
On April 2, 2025, Trump got his revenge. As US president, he was able to slap a 24% tariff on imports from Japan as part of his new global tariff regime. The immediate effect was worse on Japan than many other countries, with the Nikkei plummeting to an eight-month low,[3] and local banks and chip-sector stocks hit hardest.
Investors are right to be worried over worsening portfolios and might want to adopt a conservative stance. But it’s worth remembering that these two countries still have a highly symbiotic relationship in technology trade. As they navigate a shifting US-Japan dynamic, investors may find securities financing a useful way to preserve current portfolio values while ensuring they are also ready to react to market changes.
Strong tech connections
We have been here before. During his first term as US president, from 2017 to 2021, Trump imposed steel (25%) and aluminum (10%) tariffs on Japan. Despite over 20 meetings[4] between Trump and Japan’s prime minister at the time, Shinzo Abe, no exemption was secured.
Japanese companies, however, took their own action, becoming top contributors of foreign direct investment[5] in the US over the last five years. An annual JETRO survey[6] has even highlighted recently that Japanese companies plan to expand in the US, driven by tariff avoidance, deregulation, cheaper energy and potential lower corporate taxes.
Both countries are increasingly focused on securing technology ecosystems.[7] In 2022, the US and Japan held talks focused on economic security, which led to, among other things, plans for a new joint research center[8] for next-generation semiconductors.
Japan has been proactive, committing ¥4 trillion[9] (US$25.4 billion) to subsidize investment in the semiconductor industry — the largest among OECD countries in terms of gross domestic product. Nvidia[10] and TSMC[11] have committed investments supporting Japan’s semiconductor manufacturing push.
Japanese firms are also enhancing their presence in the US, particularly in artificial intelligence (AI) infrastructure, as the country hosts some of the top AI technology firms, most notably OpenAI. Japanese investment company SoftBank — in partnership with OpenAI, Oracle, and UAE-based MGX — plans to invest $500 billion[12] in building new AI infrastructure.
Much of that buildout is intended to take place in Japan, the world’s most tech-intensive exporter (tech accounts for more than 80% of manufacturing exports) and a country with strong foundations in tech innovation and data centers. Ranking behind only South Korea and China in terms of patent applications per capita,[13] Japan also has the largest pipeline for new data centers in Asia.[14]
Investors with a long-term focus are eyeing Japan’s industrial evolution, with private equity funds investing in utilities,[9] aviation,[10] and transport infrastructure,[11] while a record amount[12] of dry powder is still available. As global firms shift some of their simpler electronics operations away[15] from China and towards Vietnam, Mexico and other markets, Japan retains an edge when it comes to more complex technology. Its capabilities are also growing in pharmaceuticals[16] and robotics.[17]
Facing reality, and competitors
There are big opportunities for long-term value creation for some of the most enterprising Japanese firms. The US tariff disparity that now exists between Japan and China (which faces a 54%[18] levy) might temporarily benefit Japanese exports to the US. But China’s focus on “new quality productive forces” — advanced manufacturing — has already been successful in raising that country’s profile in value chains associated with electric vehicles, drone manufacturing,[19] and renewable energy. Japanese firms were once leaders in these fields.
Moreover, if other countries retaliate, the revenue growth of US technology firms, which are key partners to Japanese companies, could be at risk. Attracting and integrating talent, and upskilling existing workforces will also be key to ensure sufficient capacity for the Japanese technology industry.
Trump’s tariffs may hasten Japan’s efforts to upgrade its technology industry, perhaps not the scenario envisioned by Trump, but one that could appease him, especially as US-China competition intensifies and Japanese investment in the US accelerates.
Navigating this shift in North Asia’s economic development will have big implications for wealth creation. Specialty finance can help investors position their portfolios to capture this potential.
[1] https://www.buzzfeednews.com/article/ilanbenmeir/that-time-trump-spent-nearly-100000-on-an-ad-criticizing-us
[2] https://www.bbc.com/news/articles/c4gp5pw654lo
[3] https://www.reuters.com/markets/asia/japans-nikkei-tumbles-more-than-4-trumps-tariffs-2025-04-03/
[4] https://www.csis.org/analysis/resolved-abes-investment-his-relationship-president-trump-has-advanced-japanese-interests
[5] https://www.pbs.org/newshour/world/watch-trump-talks-trade-with-japans-prime-minister
[6] https://asia.nikkei.com/Economy/Trade-war/Japan-Inc.-more-eager-to-expand-in-U.S.-amid-Trump-tariff-fears
[7] https://www.nbr.org/publication/u-s-and-japanese-economic-security-policies-promoting-and-protecting-advanced-technologies/
[8] https://www.reuters.com/technology/us-japan-set-agree-joint-research-semiconductors-media-2022-07-29/
[9] https://www.hinrichfoundation.com/research/article/trade-and-geopolitics/japan-plan-to-restructure-global-supply-chains/
[10] https://www.bloomberg.com/news/articles/2024-09-04/nvidia-joins-100-million-funding-for-year-old-japan-ai-startup
[11] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-speeds-diversification-push-with-new-Japan-chip-plant
[12] https://openai.com/index/announcing-the-stargate-project/
[13] https://www.wipo.int/web-publications/world-intellectual-property-indicators-2024-highlights/en/patents-highlights.html
[14] https://cushwake.cld.bz/asiapacificdatacentreupdateh22024-02-2025-apac-regional-en-content-datacentres/2/
[15] https://www.spglobal.com/_assets/images/ratings/research/3254492_15831818.svg
[16] https://www.swissinfo.ch/eng/multinational-companies/japan-tries-to-win-back-big-pharma/86900114
[17] https://www.bloomberg.com/news/features/2025-03-06/thousands-of-cat-eared-robots-are-waiting-tables-in-japan
[18] https://www.bloomberg.com/news/articles/2025-04-03/us-tariffs-seen-as-far-worse-shock-to-china-than-first-trade-war
[19] https://www.technologyreview.com/2024/06/26/1094249/china-commercial-drone-dji-security/
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