Trump's tariffs are already spurring Japanese companies to shift more production to the U.S. | Fortune

"And in July, production in Toyota's U.S. factories soared 28.5% from a year ago, but output in its factories in Japan fell 5.5%. Along with this shift in production is an influx of capital. Thieliant estimated that Japan's foreign direct investment into the U.S. is on pace to hit a record high this year, while overall FDI will probably be little changed. As a result, the U.S. may take in 47% of Japan's total outbound FDI this year, marking an all-time high."

"Japan's export volume to the U.S. has fallen to the weakest level since 2021 while its overall exports remain above the 2024 average, Marcel Thieliant, head of Asia-Pacific at Capital Economics, said in a note on Thursday, citing recent data from the Bank of Japan. "What is becoming increasingly clear though is that firms are responding to U.S. tariffs by stepping up production in their U.S. subsidiaries," he explained."

"But all of that investment isn't just due to Trump's trade deal, he added. Instead, the key driver is the strong U.S. economy as it outperforms Europe, which was previously a bigger destination of Japan's FDI. In fact, surveys from 2024 showed nearly half of Japanese manufacturers with overseas subsidiaries had planned to expand U.S. production. "Stepping back, falling exports are a headwind to economic activity in Japan," Thieliant said."

Japan's export volume to the U.S. has fallen to its weakest level since 2021 while overall exports remain above the 2024 average. Japanese firms are increasing production in U.S. subsidiaries in response to U.S. tariffs. Overseas subsidiaries of Japanese manufacturers in North America recorded sales growth six percentage points faster than Japan's exports to the region in the second quarter. In July, Toyota's U.S. production rose 28.5% year-on-year while Japanese output declined 5.5%. Japan's foreign direct investment into the U.S. is on pace for a record high and the U.S. may receive roughly 47% of outbound FDI. A strong U.S. economy, not only tariffs, is a major driver. Falling exports pose a headwind to Japan's economy, but serving U.S. customers via local subsidiaries should limit impacts on profits, investment, and wage growth.

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