Economy
Slump in auto exports amid tariffs hits Japan’s shipments to US
Japan’s exports dropped in May for the first time in eight months as top automakers like Toyota were hit by sweeping U.S. tariffs – while Tokyo also did not manage to strike a trade deal with Washington this week – which would likely put even more pressure on a fragile economy.
Japan’s Prime Minister Shigeru Ishiba said after the G-7 summit in Canada on Tuesday that his country had not reached a comprehensive tariff agreement with Washington, as some disagreements persisted between the two nations despite several rounds of talks.
Japan and the U.S. “explored the possibility of a deal until the last minute,” he added.
Tokyo is scrambling to find ways to get Washington to exempt Japan’s automakers from 25% automobile industry-specific tariffs, which are hurting the country’s manufacturing sector. Japan also faces a 24% “reciprocal” tariff rate starting on July 9 unless it can negotiate a deal with Washington.
The data on Wednesday showed that Japanese auto exports to the U.S. fell almost a quarter in May as worries over tariffs grow.
Roughly 8% of jobs are tied to the auto industry in Japan, which is home to the world’s top-selling carmaker, Toyota, as well as Honda, Nissan and other giants.
Japan’s automobile sector accounted for about 28% of the total 21 trillion yen ($145 billion) worth of goods the Asian country exported to the U.S. last year.
Total exports down
Its total exports in May dropped 1.7% year-over-year by value to 8.1 trillion yen, government data showed, smaller than a median market forecast for a 3.8% decrease, and following a 2% rise in April.
Exports to the U.S. slumped 11.1% last month from a year earlier, the largest monthly percentage decline since February 2021, dragged down by a 24.7% plunge in automobiles and a 19% fall in auto components, while a stronger yen also helped reduce the value of shipments. Exports to China were down 8.8%.
In terms of volume, however, U.S.-bound automobile exports dipped just 3.9%, indicating that the biggest Japanese exporters were absorbing the tariff costs.
“The value of automobile exports to the U.S. fell, but their volume did not drop that much,” Daiwa Institute of Research economist Koki Akimoto said. “This indicates Japanese automakers are effectively shouldering the tariff costs and not charging customers.”
So far, major Japanese automakers have refrained from price increases in the U.S. to mitigate the tariff costs, except for Subaru and Mitsubishi Motors.
“They are buying time right now to see the course of Japan-U.S. trade negotiations,” Akimoto said. The absence of price hikes could affect their profits, but their fiscal base is generally solid, he added.
While Japanese stocks and the yen showed little reaction to the data, shares of car companies have come under pressure this year due to concerns about the tariff impact.
Automakers and other transport companies are the second-worst performers this year among the Tokyo market’s 33 sector sub-indices, down almost 12%. Only makers of precision equipment have fared worse.
Toyota, the world’s top-selling automaker, has estimated that tariffs likely sliced 180 billion yen from its profit in April and May alone. Honda has said it expects a 650 billion yen hit to its earnings this year from tariffs in the U.S. and elsewhere.
The Japan May trade data provide one of the earliest indications of how U.S. President Donald Trump’s tariffs are impacting countries and the global economy.
China’s data showed this week that the country’s factory output grew 5.8% in May year-over-year, the slowest pace in six months. And its outbound shipments to the U.S. plunged 34.5%, the sharpest drop since February 2020.
The impending tariffs had driven companies in Japan and other major Asian exporters to ramp up shipments earlier this year, inflating levels of U.S.-bound exports during that period.
The Japan data showed imports dropped 7.7% in May from a year earlier, compared with market forecasts for a 6.7% decrease.
As a result, Japan ran a trade deficit of 637.6 billion yen last month, compared with the forecast of a deficit of 892.9 billion yen.
After the G-7 summit in Canada, Ishiba told reporters that U.S. tariffs were “hitting many Japanese companies’ profits.”
The situation “could have a grave impact on both Japan and the U.S. as well as the world economy, directly and indirectly,” he warned.
Drag on GDP
The hit from U.S. tariffs could add more pressure on Japan’s lackluster economy. Subdued private consumption already caused the world’s fourth-largest economy to shrink in January-March, the first contraction in a year.
However, the smaller-than-expected drop in May shipments suggests that Japan’s export driver has not stumbled, slightly raising the chance of the economy avoiding a contraction in the April-June quarter, Yuhi Kawano, economist at Mizuho Securities, wrote in a report.
The tariff woes complicate the Bank of Japan’s (BOJ) task of raising still-low interest rates and reducing a balance sheet that has ballooned to roughly the size of Japan’s economy.
The BOJ kept interest rates steady on Tuesday and decided to decelerate the pace of its balance sheet drawdown next year, signaling its preference to move cautiously in removing remnants of its massive, decadelong stimulus.
According to an estimate by the Japan Research Institute, if all the threatened tariff measures against Japan were to take effect, U.S.-bound exports would fall by 20% to 30%.
Some economists say those duties could shave around one percentage point of the nation’s gross domestic product (GDP).
Seven weeks of war have failed to remove Iran’s leadership or force it to meet all of U.S. President Donald Trump’s demands, but for both U.S. adversaries and allies, it has cast a spotlight on one of his main vulnerabilities: economic pressure.
Even with Iran’s announcement on Friday that it was reopening the Strait of Hormuz to shipping, the Middle East crisis has revealed the limits of Trump’s willingness to tolerate domestic economic pain.
Trump joined Israel in attacking Iran on Feb. 28 based on what he said were imminent security threats, especially over its nuclear program. But now, with U.S. gasoline prices high, inflation rising and his approval ratings down, Trump is racing to secure a diplomatic deal that could stem the fallout at home.
Iran has taken a beating militarily, but demonstrated it can exact economic costs that Trump and his aides underestimated, unleashing the worst-ever global energy shock, analysts say.
Rising energy costs, recession risks
Trump has often publicly shrugged off domestic economic concerns driven by the war.
However, he can hardly ignore that although the U.S. does not depend on one-fifth of global oil shipments that were effectively blocked by Iran’s chokehold on the strait, surging energy costs have hit U.S. consumers.
The International Monetary Fund’s (IMF) warning of a risk of global recession adds to the gloom.
Pressure for a way out of the unpopular war has mounted as Trump’s fellow Republicans defend narrow majorities in Congress in the November midterm elections.
None of this has been lost on Iran’s leaders, who have used their grip on the strait to push Trump’s team to the negotiating table.
Analysts say U.S. rivals China and Russia may draw their own lesson: while Trump has shown an appetite for military force in his second term, he looks for a diplomatic off-ramp as soon as the economic heat becomes uncomfortable at home.
“Trump is feeling the economic pinch, which is his Achilles heel in this war of choice,” said Brett Bruen, a former foreign policy adviser in the Obama administration who heads the Global Situation Room strategic consultancy.
White House spokesperson Kush Desai said that while working toward a deal with Iran to resolve “temporary” energy market problems, the administration “has never lost focus on implementing the president’s affordability and growth agenda.”
“President Trump can walk and chew gum at the same time,” he said.
Feeling the pressure
Trump’s abrupt shift on April 8 from airstrikes to diplomacy followed pressure from financial markets and parts of his MAGA base.
Some of the economic pain is borne by U.S. farmers, a key Trump constituency, due to disrupted fertilizer shipments, and is also reflected in higher airfares from increased jet fuel prices.
With the clock ticking on a two-week cease-fire, it remains to be seen whether a president who embraces unpredictability will reach a deal that meets his war goals, extend the truce beyond April 21, or relaunch the bombing campaign.
But global oil prices fell sharply and financial markets, which Trump often sees as a barometer of his success, flourished on Friday after Iran said the strait would be open for the remainder of a separate U.S.-brokered 10-day truce between Israel and Lebanon.
Trump was quick to declare the strait safe as he touted a deal-in-the-making with Iran that he said would be completed soon and mostly on his terms. But Iranian sources told Reuters gaps remained to be resolved.
Experts have warned that even if the war ends soon, the economic damage could take months if not years to fix.
A key question is whether any deal achieves the objectives Trump has laid out, including closing Iran’s path to a nuclear weapon, which Tehran has long denied it is seeking.
Iran has a stockpile of highly enriched uranium believed to be buried by U.S.-Israeli strikes last June. Trump told Reuters on Friday that the emerging deal calls for the U.S. to work with Iran to recover the material and bring it to the U.S. Iran denied agreeing to a transfer anywhere outside its territory.
A senior Trump administration official said the U.S. was maintaining “several redlines” in negotiations with Iran.
At the same time, Trump’s call at the war’s outset for Iranians to overthrow their government has gone unheeded.
Allies from Europe to Asia were initially stunned by Trump’s decision to go to war without consulting them or seeming to take into account the risk to them of Iran closing the strait.
“The alarm bell ringing for allies right now is how the war has highlighted that the administration can act erratically, without much regard for consequences,” said Gregory Poling, an Asia expert at the Center for Strategic and International Studies in Washington.
After Russia’s 2022 invasion of Ukraine, former Democratic President Joe Biden was cautious about imposing sanctions on Moscow’s energy sector out of concern for reducing oil supplies and inflating U.S. gas prices.
But Trump, who ran for a second term on promises of cheap gas and low inflation, has shown himself sensitive to accusations that his policies raise prices. An example was when he reduced tariffs on China last year after it retaliated.
Miscalculations
Just as Trump misjudged Beijing’s response in a trade war, he seems to have miscalculated how Iran might strike back economically in a shooting war, by attacking energy infrastructure in Gulf states and blocking the strategic waterway between them.
Trump mistakenly believed the war would be a limited operation like the Jan. 3 lightning raid in Venezuela and June’s strikes on Iran’s nuclear sites, U.S. officials have said privately.
But this time the repercussions are more far-reaching.
The message to Asian allies such as Japan, South Korea and self-ruled Taiwan may be that Trump, who is looking for warmer ties with China, can be expected to pursue his regional goals with less regard for their geopolitical and economic security.
Analysts believe those governments will adjust for any contingency, such as a Chinese bid to seize Taiwan, out of concern over Trump’s reliability.
European countries, annoyed they are bearing so much of the economic brunt of a war that they never asked for, are likely to be even more nervous about Trump’s commitment to continued aid to Ukraine in its war with Russia, analysts say.
Gulf Arab states want the war to end soon, but will be unhappy if Trump cuts a deal without security guarantees for them.
“An end to this conflict should not also create a continuous instability in the region,” said Anwar Gargash, diplomatic adviser to the president of the United Arab Emirates.
Most MAGA supporters have stuck with Trump despite some prominent dissenting voices. But there are growing doubts whether he can help his party recover lost ground, especially with independent voters, in time for the midterms.
“He’s aware that a significant portion of the country outside his MAGA base, and even some within the MAGA base, are vehemently opposed to what he’s done,” said Chuck Coughlin, an Arizona-based political strategist.
“And I think the price is going to come due.”
Iran announced on Friday it fully reopened the Strait of Hormuz to commercial vessels, but U.S. President Donald Trump said the American blockade on Iranian ships and ports “will remain in full force” until a deal is reached with Tehran.
Iranian Foreign Minister Abbas Araghchi posted on X that the crucial waterway through which about 20% of the world’s oil is shipped was now fully open to commercial vessels, as a 10-day truce in Lebanon appeared to hold.
The truce offered a pause in Israeli strikes on Lebanon and could clear one major obstacle to a deal between Iran and the U.S. and Israel to end weeks of devastating war.
Trump initially celebrated, posting on social media that Iran announced the strait “is fully open and ready for full passage.” But minutes later, he issued another post saying the U.S. Navy’s blockade would continue until “UNTIL SUCH TIME AS OUR TRANSACTION WITH IRAN IS 100% COMPLETE.”
Trump imposed the blockade earlier this week after Iran restricted traffic through the strait due to Israeli strikes on Lebanon, which Iran said was a breach of the Pakistan-brokered cease-fire reached between the U.S., Israel and Iran.
At the time, Trump said the blockade would enforce an “all or none” policy in hopes of pressuring Iran to reopen the strait.
Trump’s decision to continue the blockade despite Iran’s announcement appeared aimed at sustaining pressure on Tehran, as the fate of the two-week cease-fire reached last week remains uncertain.
Direct talks between the U.S. and Iran last weekend were inconclusive, as the two nations differed over Iran’s nuclear program and other sticking points.
Trump had said on Thursday that talks with Iran could happen as soon as this weekend, although that was looking increasingly unlikely by Friday afternoon, given the logistics of assembling officials in Islamabad, where the talks are expected to take place.
The head of the International Energy Agency had warned that energy shocks could get worse if the Strait of Hormuz did not reopen. Iran closed the crucial waterway shortly after the war began, threatening the worst oil shock in history.
Oil prices plunged following Araqchi’s post.
The International Monetary Fund (IMF) this week lowered its forecasts for global growth and warned the global economy risked tipping into recession if the conflict was prolonged.
Later on Friday, a senior Iranian military official said Tehran would block military vessels from transiting the Strait of Hormuz,
“The passage of military vessels through the Strait of Hormuz remains prohibited,” the official was quoted as telling Iranian state television, adding that civilian vessels would have to transit the waterway through designated routes and with permission of the Iranian Revolutionary Guards Navy.
French President Emmanuel Macron and British Prime Minister Keir Starmer welcomed the Strait of Hormuz reopening, but said it must become permanent
They said they will keep planning an international mission to restore maritime security, with a meeting of military planners in London next week.
Speaking after a gathering of some 50 countries, Macron said “we all demand the full, immediate and unconditional reopening of the Strait of Hormuz by all parties.”
Starmer said the announcement by Iran and the U.S. must become “both lasting and a workable proposal.”
He said France and the U.K. will lead a multinational mission to safeguard shipping “as soon as conditions allow.”
House sales in Türkiye declined by 2.1% year-over-year in March, according to data that also showed Iranians were the second biggest foreign homebuyers.
A total of 113,367 houses were sold last month, the Turkish Statistical Institute (TurkStat) said.
The figure compares with 115,788 sales recorded a year ago.
From January through March, residential property sales stood at 349,396 units, down 0.3% year-over-year, the data showed.
Istanbul led the market last month with 21,665 sales, followed by Ankara with 10,236 and Izmir with 7,278.
New home sales rose 1.3% year-over-year to 35,725 units, while second-hand sales fell 3.6% to 77,642 units.
Mortgage-backed sales jumped 35.9% to 25,978, accounting for 22.9% of total transactions.
Sales to foreigners declined 20% year-over-year to 1,353 units.
By nationality, the highest number of houses were sold to citizens of Russia with 229 units, followed by Iran with 130, and Iraq with 84.
Iranians have been among the top homebuyers in Türkiye for years, but the focus has centered on the impact of the war that started on Feb. 28 after the U.S. and Israel launched strikes on Iran.
The sides agreed to a two-week cease-fire last week and are weighing a return to Pakistan for further talks as early as the coming weekend.
Türkiye, a NATO member and neighbor of Iran, has been in close touch with the U.S., Iran and Pakistan, and has repeatedly called for the fighting to stop.
Türkiye’s energy markets have demonstrated strong resilience in the face of successive global shocks, Energy and Natural Resources Minister Alparslan Bayraktar said on Friday, pointing to years of crisis-driven adaptation as a key strength.
Bayraktar was speaking at a panel on the sidelines of the Antalya Diplomacy Forum 2026, where he addressed the latest market turbulence linked to the Middle East conflict, while signaling a faster timeline for the country’s transition toward a low-carbon economy.
Energy prices have spiralled since the Strait of Hormuz, a vital global oil and gas shipping route, was closed as a result of the U.S.-Israeli attacks on Iran and Tehran attacking energy infrastructure in the Middle East. On Monday, Washington imposed a blockade on ships entering or leaving Iranian ports.
The crisis came as a test for countries heavily reliant on oil and gas imports, including Türkiye.
Bayraktar said Türkiye’s ability to withstand volatility stems from years of exposure to overlapping crises, including the climate crisis, the COVID-19 pandemic, supply chain disruptions and geopolitical conflicts such as the Russia-Ukraine war and tensions in the Middle East.
“This crisis has, of course, affected us deeply. However, our energy markets are quite resilient. Türkiye is resilient because we have experienced crises in the past. We are already living with the uncertainties surrounding us,” said the minister.
“Over the last six to seven years, we have experienced the climate crisis, the pandemic and uncertainties in the supply chain. Following the Russia-Ukraine war, Iran and the Middle East have all made Türkiye resilient. We are used to dealing with crises.”
Bayraktar emphasized that Türkiye’s energy strategy has evolved over the past 25 years, with reforms opening markets to private investment, expanding regional cooperation and delivering large-scale infrastructure projects. However, he warned that rapidly rising domestic energy demand presents a growing challenge.
Carbon-neutral policy
He emphasized that Türkiye’s long-term strategy centers on boosting energy security while reducing import dependence through diversification and increased use of renewables.
“Energy demand in Türkiye is increasing very rapidly. AI-based centers and factors like electric vehicles are driving up energy needs. We have set a goal to move away from fossil fuels and utilize electricity. As an import-dependent country, we want to reduce this dependency,” he noted.
“We have a carbon-neutral policy. Diversifying our energy resources is crucial for us. We want to benefit more from renewable energy sources. However, we are not turning our backs on fossil fuels either. We need to have an energy architecture.”
Despite its push toward cleaner energy, Türkiye must continue to meet immediate demand from conventional sources, Bayraktar noted. He said around 40 million vehicles are on the country’s roads daily, while approximately 22 million households rely on natural gas, underscoring the need to maintain stable fuel supplies.
Keyword: Renewables
The minister still said renewable energy would be the “keyword” for the economy going forward, with expanded capacity, storage solutions and system security critical to achieving long-term targets. Türkiye aims to become a carbon-neutral economy by 2050, though Bayraktar indicated the government is considering bringing some targets forward, including energy efficiency goals.
“We have a very strong goal to become a carbon-neutral economy by 2050. But we are considering advancing this target, potentially bringing it forward to 2035,” he said, adding that plans to implement a national energy efficiency program by 2040 could also be accelerated to 2030.
Türkiye is also deepening its international energy engagement, the minister said, noting that the country has invested in multiple cross-border projects and recently launched offshore drilling operations in Somalia.
One of most serious energy crises
The panel brought together senior policymakers, including Azerbaijan Energy Minister Perviz Shahbazov, Slovenian Environment, Climate and Energy Minister Bojan Kumer, and Francesco La Camera, head of the International Renewable Energy Agency (IRENA), all of whom highlighted the broader global implications of ongoing energy disruptions.
Shahbazov warned that the world is facing one of its most serious energy crises, pointing to risks surrounding the Strait of Hormuz, a key artery for global oil flows.
He said disruptions affecting up to 12 million barrels of oil could have far-reaching consequences, including increased fragility in Europe’s jet fuel supply.
“This is a global crisis. We all need to fight this crisis together. At this point, Azerbaijan has diversified its own supply routes. We supply 40 million barrels to 20 different countries. Recently, we have also started supplying natural gas to our European partners,” he noted.
He added that producer nations are also vulnerable to price volatility despite perceptions that they benefit from crises.
“Balanced prices are important for all of us,” said Shahbazov.
Coordinated action needed
Kumer said Slovenia, which imports all of its oil, has been hit by rising prices and declining volumes, particularly at a time of seasonal demand increases in agriculture.
“This crisis did not find us at the right time,” he said.
He stressed that the crisis underscores the need for coordinated action within the European Union.
“No country can manage such an energy crisis alone,” Kumer said, adding that shifting away from fossil fuels remains essential given limited domestic resources.
“Before the Ukraine war, we were importing natural gas from Russia. Renewable energy is the future of the world. Fossil fuel is not a resource that we possess,” he added.
Fossil fuel crisis
IRENA’s La Camera argued that the current turmoil reflects a structural weakness in a fossil fuel-based system rather than a conventional energy crisis.
“This is not an energy crisis. This is a crisis of the energy system being built on fossil fuels. This is a fossil fuel crisis. This will shift us more toward renewable energy,” he noted.
La Camera explained that renewable energy installations added in a single year now exceed decades of nuclear capacity growth. He cited countries such as Spain, where renewables account for a significant share of energy production, and Türkiye, which has been vastly investing in renewable energy sources, as examples of the transition already underway.
He warned that regions slow to embrace renewables risk losing economic competitiveness.
“For the economy to be competitive, the energy system must be strong. Europe still underestimates renewable energy resources. That is why Asia, which invests in renewable energy, is winning while Europe is losing,” La Camera said.
U.S. Ambassador to Türkiye Tom Barrack said on Friday he expected Washington and Ankara to “soon” solve the issue of sanctions over Ankara’s purchase of Russian S-400 missile defenses.
“I think you are going to see the S-400 situation solved soon. From my boss’s point of view, acceptance into an F-35 program is fine,” Barrack said at the Antalya Diplomacy Forum.
Türkiye was excluded from the U.S.-led multinational program in 2019, and Washington imposed Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions over its purchase of Russian-made S-400 air defense systems.
Ever since, Ankara has repeatedly called the move unfair and voiced hope that the sides could overcome the issue during U.S. President Donald Trump’s second term.
President Recep Tayyip Erdoğan raised the issue during the last September meeting with Trump at the White House. Trump later said the U.S. was “very seriously” considering the sale of F-35 jets to Türkiye.
In late 2024, Ankara secured a $7 billion deal with Washington for 40 F-16 jets. But talks have reportedly been dogged by Turkish concerns about the price and desire to buy F-35s instead.
Despite boasting NATO’s second-largest army, Türkiye often faced arms embargoes in the past. That pushed it to significantly boost domestic capabilities and curb foreign dependence over the last two decades.
Today, it produces a wide range of vehicles and arms types domestically, including its own drones, missiles and naval vessels. It’s also developing its own fifth-generation fighter jet.
Named Kaan, the stealth fighter is sought to replace the Air Force Command’s aging F-16 fleet, which is planned to be phased out starting in the 2030s.
Oil prices fell by more than 10% on Friday after U.S. President Donald Trump and Iran’s foreign minister said the Strait of Hormuz is now fully open, which would allow oil tankers to exit the Persian Gulf again and carry crude to customers worldwide.
The announcements came as a 10-day truce in Lebanon appeared to hold. The truce offered a pause in Israeli strikes on Lebanon and could clear one major obstacle to a deal between Iran and the United States and Israel to end weeks of devastating war.
In a social media post, Trump said Iran announced that the strait “is fully open and ready for full passage.”
Minutes earlier, Iranian Foreign Minister Abbas Araghchi posted on the social media X that the passage for all commercial vessels through the strait “is declared completely open” in line with the cease-fire in Lebanon. He said it would stay open for the remaining period of the truce.
It was not immediately clear what that meant for the U.S. blockade of the strait.
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