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"Trade friction" has become such a familiar term in recent years that it seems to appear in the news almost every day. In 2025, the United States imposed "reciprocal tariffs" on almost every country and region, including Japan, and in February 2026 the U.S. Supreme Court ruled those tariffs unlawful. Even so, Washington has reimposed tariffs under other laws, and the trade environment facing Japanese companies and households continues to shift rapidly.
In this article, we will break down the meaning and causes of trade friction, looking at key examples like the U.S.-Japan trade dispute and the U.S.-China conflict that began in 2018. We will also cover the latest developments in U.S. tariff policy for 2025–2026, and finally, explain how all of this impacts Japanese companies, our daily lives, and our investments.
Trade friction refers to a situation in which countries clash through tariff hikes, import restrictions, export controls and similar measures, typically because one country's exports surge or because its trading partner seeks to protect its own industries or national security.
Trade imbalance : When one country runs a large trade surplus with another, it creates a sense of economic unfairness on the part of the recipient.
Protectionist policy : In order to protect domestic industries, high tariffs are imposed on imports and quantitative restrictions are set.
Exchange-rate policy: Because a weaker domestic currency gives exporters an advantage, accusations of "currency manipulation" from trading partners can spark friction.
State subsidies/technical assistance : When governments provide support to specific industries, it creates an imbalance in international competition.
Security concerns: Countries restrict exports and investment out of concern that advanced technologies or critical materials could strengthen another country's military. In the U.S.–China rivalry of the 2020s, this has become a bigger point of conflict than tariffs.
These factors crop up intermittently in the tug-of-war between free trade and protectionism, creating political and economic tensions.
"Economic friction" is a broader term that encompasses overall economic conflict between nations, covering not just trade, but also investment, exchange rates, regulations, and business practices. "Trade friction," by contrast, specifically refers to disputes over imports and exports.
In some cases, such as the U.S.–Japan Structural Impediments Initiative of 1989–90, trade friction expanded to cover the very workings of Japan's economy — its distribution system, business practices and the closed nature of its markets — and came to be called "economic friction."
For Japan, the most prominent example of trade friction is the U.S.-Japan trade dispute, which lasted from the late 1950s to the mid-1990s. The targeted products changed over time, and eventually, the very structure of Japan's economy became the subject of negotiations.
U.S.–Japan trade friction did not begin in the 1980s. Starting with textiles in the late 1950s, the products in dispute shifted to steel, color televisions, automobiles and semiconductors each time the mainstay of Japan's exports changed. Behind it lay Japan's growing trade surplus with the United States and the backlash from U.S. industry and Congress over the jobs lost as a result.
In the 1980s, a surge in Japanese car exports led to voluntary restraints on passenger car exports to the U.S. beginning in 1981. The U.S.–Japan Semiconductor Agreement was signed in 1986, and in 1987 the U.S. imposed 100% retaliatory tariffs on Japanese personal computers and other products, citing violations of the agreement. The sharp appreciation of the yen following the 1985 Plaza Accord also served, in part, as a response to the friction.
From the late 1980s, rather than individual products, Japan's distribution system, business practices and keiretsu transactions came under fire as signs of a "closed market," leading to the Structural Impediments Initiative of 1989–90 and the U.S.–Japan Framework Talks from 1993. It was also this period of friction that prompted Japanese companies to expand local production in the United States in earnest.
Under the first Trump administration in 2018, the United States phased in additional tariffs under Section 301 of the Trade Act, citing China's intellectual property infringement and forced technology transfer. China responded with retaliatory tariffs. Tensions eased temporarily with the "Phase One" agreement in January 2020, but most of the tariffs remained in place under the Biden administration. When the second Trump administration took office in 2025, the conflict flared up again, and the two sides have since alternated between truces and renewed tension (the latest developments are covered below).
Over government subsidies to Boeing (U.S.) and Airbus (Europe), the United States and the EU filed complaints against each other at the WTO in 2004. The WTO found both sides' subsidies illegal, and in 2019–2020 the U.S. imposed retaliatory tariffs on about $7.5 billion worth of goods and the EU on about $4 billion. In 2021, the two sides agreed to suspend the retaliatory tariffs for five years, and when that deadline arrived in July 2026, the EU decided to extend the suspension. This 17-year dispute is a textbook example of how industrial policy can generate long-running trade friction.
The second Trump administration, which took office in January 2025, invoked the International Emergency Economic Powers Act (IEEPA), an emergency statute, to impose tariffs first on China, Canada and Mexico, and then in April on almost every country and region in the form of "reciprocal tariffs." After negotiations, Japan agreed with the United States in July 2025 to set both the reciprocal tariff and the auto tariff at 15%, and also pledged around $550 billion in investment in the U.S.
On February 20, 2026, however, the U.S. Supreme Court ruled that IEEPA does not give the president the authority to impose tariffs, invalidating the reciprocal tariffs. The administration immediately switched to a temporary 10% across-the-board tariff under Section 122 of the Trade Act. When that expired on July 24, it began imposing tariffs of 10–12.5% on 60 countries and regions under Section 301, on the grounds that their measures against forced labor were inadequate. The rate for Japan is 12.5%.
For Japan, however, the two governments reconfirmed in September 2026 that no tariffs exceeding the terms of the 2025 agreement would be imposed. Separately, product-specific tariffs under Section 232 continue to apply to items such as automobiles and steel, and were not affected by the Supreme Court ruling. As of autumn 2026, the picture is this: the legal basis for the tariffs has changed, but high tariffs remain.
In 2025, the United States raised additional tariffs on Chinese goods to as high as 145% at one point, while China countered with 125% retaliatory tariffs and export controls on rare earths. Since then, following talks in Geneva in May and a leaders' summit in October, a "truce" in which both sides lowered tariffs has held, and in September 2026 its deadline was extended to January 10, 2027. Disputes over advanced technology and critical minerals remain unresolved, however, and the truce is widely seen as only a temporary lull.
Since October 2022, the United States has tightly restricted exports of advanced semiconductors and chipmaking equipment to China. Japan and the Netherlands moved in step with the U.S., each introducing export controls on advanced chipmaking equipment under their own laws in 2023. Japan's controls cover 23 items, forcing equipment makers such as Tokyo Electron to review their sales to China. China has responded with export controls on critical minerals in which it holds an advantage, such as gallium, germanium and rare earths, and the two sides continue to squeeze each other on both technology and resources.
Regarding the Chinese-linked video app TikTok, the United States passed a law in 2024 requiring Chinese ownership to be divested. In January 2026, the U.S. business was finally transferred to a joint venture led by Oracle and other investors, with parent company ByteDance's stake capped at under 20%. Both the U.S. and Chinese governments approved the transaction, bringing the matter to a close for now. Concerns over control of data and algorithms have not disappeared, however, and the case has become a symbol of friction in the digital sphere.
The Inflation Reduction Act (IRA), enacted by the United States in 2022, offered generous tax credits for the purchase and production of EVs and renewable energy, but many of them were conditioned on production and sourcing in North America. China filed a WTO complaint in March 2024, and in January 2026 a WTO dispute settlement panel found that some of the tax credits violated WTO agreements. Japan chose not to file a complaint; instead, it signed a critical minerals agreement with the U.S. in 2023 and negotiated to have minerals from Japan qualify for the preferential treatment. The tax credit of up to $7,500 for buying a new EV was terminated on September 30, 2025, under a tax-cut law enacted in July of that year.
Trade friction is not limited to U.S.–Japan or U.S.–China relations. On January 6, 2026, China's Ministry of Commerce announced a ban on exports of dual-use items to military users, military end uses and other end users in Japan that would enhance its military capabilities. The move is widely seen as retaliation for Prime Minister Sanae Takaichi's remarks in the Diet regarding a Taiwan contingency. The specific items were not named, but they may include rare earths and other materials essential to Japanese manufacturing, once again highlighting the need to diversify supply sources.
The US-China conflict is not just an economic issue, but also contains a geopolitical element of the conflict between democracy and authoritarianism. As a result, friction has arisen in areas such as the Taiwan issue, the South China Sea, and AI weapons development, affecting not only trade but also the entire international order.
Trade friction is also a risk that directly affects how companies are run. When tariffs or export controls change, the cost of procuring raw materials, selling prices and the profitability of production sites change immediately. In a period like the one since 2025, when tariff rates and their legal basis can change within a short time, companies need the flexibility to plan on the assumption that things will keep changing.
These effects are especially pronounced in export-intensive manufacturing, high-tech industries and international logistics.
Although Japan has a large economy, it is dependent on resource imports and product exports, making it vulnerable to external trade frictions. The following are some representative examples.
Automobiles are the Japanese industry most strongly affected by U.S. tariffs. After the United States imposed additional tariffs on imported vehicles in 2025, Toyota projected that tariffs would reduce its operating profit for the fiscal year ending March 2026 by about ¥1.4 trillion, and the combined impact on seven major automakers was reported at about ¥2.6 trillion (as of August 2025). Toyota and Honda have expanded local production in the U.S. since the U.S.–Japan friction of the 1980s, and Toyota now builds more than half of the vehicles it sells in the U.S. locally. Even so, exports of finished vehicles and parts from Japan continue, and automakers are rushing to reduce the tariff burden by cutting costs and reviewing the models they sell.
Semiconductor equipment makers such as Tokyo Electron are reviewing how they handle products for China in response to Japan's tighter export controls. Meanwhile, efforts to strengthen domestic chip production are moving forward, including the start of operations at the plant Taiwan's TSMC built in Kumamoto Prefecture and the launch of Rapidus's pilot line in Hokkaido. Raising domestic supply capacity without giving up overseas markets — balancing reshoring with international diversification — has become a common challenge in this field.
In agriculture and food, companies are developing export markets beyond the United States by making use of multilateral agreements such as the TPP (CPTPP) and the Japan–EU EPA. At the same time, under the 2025 U.S.–Japan tariff agreement, Japan accepted increased imports of U.S. rice and other farm products, showing that resolving trade friction can also affect domestic agricultural policy.
The effects of trade friction are not limited to companies. U.S. tariffs push up prices within the United States, but in Japan, too, weaker earnings at exporters could spill over into wages and employment. Currency and stock markets also swing sharply with each tariff announcement. Immediately after the United States announced reciprocal tariffs in April 2025, stock prices plunged worldwide, and when the U.S.–Japan agreement was reported in July, the Nikkei Stock Average hit a year-to-date high.
From an investment perspective, news about tariffs and export controls can cause large short-term moves in the prices of risk assets such as stocks and crypto assets. Avoiding concentration in a single country or sector and keeping diversification in mind can be considered a basic precaution in an era of ongoing trade friction.
Takahide Kiuchi of Nomura Research Institute has said that even if the United States applies Section 301 tariffs to Japan, they are unlikely to exceed the level of the 2025 reciprocal tariff (15%). Meanwhile, the USTR is also pursuing a separate Section 301 investigation into overcapacity, so where tariff rates will ultimately settle remains uncertain.
The WTO Appellate Body, which serves as the "second instance" of the WTO's dispute settlement system, has been unable to function since December 2019 because the United States continues to block the appointment of its members. WTO reform was a major agenda item at the 14th Ministerial Conference (MC14) held in Cameroon in March 2026, but the Appellate Body has not been restored. In 2023, Japan joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), a provisional substitute for the Appellate Body, alongside the EU and others. Against this backdrop, countries are placing greater emphasis on bilateral trade agreements and cooperation with like-minded partners.
In Japan, the Economic Security Promotion Act was enacted in May 2022, and all of its systems were in operation by May 2024. Items such as semiconductors, storage batteries and critical minerals have been designated as "specified critical materials," a list that had grown to 16 items as of December 2025. With China banning exports of dual-use items to Japan in January 2026, diversifying supply sources and strengthening domestic stockpiles and production have become even more pressing challenges for companies.
Q. What is the difference between trade friction and tariffs?
A tariff is the tax itself levied on imported goods, while trade friction refers to a state in which countries are in conflict over measures such as raising those tariffs. Tariffs can be seen as one of the "tools" of trade friction.
Q. Weren't the Trump tariffs ruled unlawful by the Supreme Court? What was ruled unlawful were the reciprocal tariffs and other tariffs based on IEEPA. The U.S. has since reimposed tariffs under other laws, such as Sections 122 and 301 of the Trade Act, and Section 232 tariffs on autos and other goods also remain in place.
Q. How high are tariffs on Japanese exports now? It depends on the product. Since July 2026, a rate of 12.5% generally applies under Section 301 (with nothing added if the original tariff rate is already that high or higher), and autos are subject to 15% under Section 232. The Japanese and U.S. governments have confirmed that tariffs will not exceed the terms of the 2025 agreement (15% in principle).
Q. When did the U.S.–Japan trade friction occur? It began with textiles in the late 1950s and continued until the mid-1990s, shifting to steel, color TVs, autos and semiconductors along the way. It was most intense in the 1980s.
Trade friction is no longer confined to tit-for-tat tariffs; it has expanded into contests over technological leadership, national security and resources. In 2025–2026, the rules themselves kept changing within short periods — for example, U.S. tariffs were reimposed under different laws after the Supreme Court ruled them unlawful. In addition to the U.S.–China rivalry, friction over export controls has also arisen between Japan and China, and Japan is likely to find itself a party to such disputes more often.
For Japan, maintaining the free trade system while at the same time diversifying its supply chain, becoming technologically independent, and improving its systems from the perspective of economic security are urgent issues. Companies, too, are required to make strategic decisions based on political and economic trends in order to maintain a competitive advantage in the global market.
