Japan’s economy has shown strength and growth so far this year, but the unpredictability of the brewing trade war and the broad-sweeping implications of tariffs from a major trade ally could slow the nation’s growth.

Japan’s economy grew faster than anticipated in the final quarter of 2024, according to Reuters, with gross domestic product (GDP) expanding by 2.8%, beating out previous estimates. In March, Japan’s exports rose for the sixth straight month, as Japanese companies ramp up shipping efforts before proposed tariffs from the United States clamp down on trade between the two nations, sending ripples through Japan’s export-reliant economy.

U.S. President Donald Trump enacted a 25% tariff on auto parts, steel and aluminum exports on April 2 along with a baseline 10% tariff on all imports for the next 90 days. Japan’s economy is in an uncertain place as the United States is a key trading partner, and tariffs could stifle that free flow of trade between the two nations.

The possible implications of such sweeping tariffs for Japan, who exports more to the United States than any of their other trade allies, cannot be overstated. Last month, shipments from Japan to the United States rose 3.1% from a year prior, according to Reuters, with a 35.8% rise in electronic parts, 29.7% jump in pharmaceuticals and a 4.1% increase in cars. According to Chief Economist at Norinchukin Research Institute Takeshi Minami, the automobile industry could not front-load shipments to the United States ahead of possible tariffs due to their production process.

“Looking ahead, the U.S. tariffs could not just slow exports but also drag down wages at export-oriented companies,” Minami said according to Reuters. “That could risk derailing the scenario that real wage growth spurs a modest economic recovery driven by domestic consumption.”

For the last fiscal year through March, Japan racked up a $37 billion (5.2 trillion yen) global trade deficit, according to AP, making it the fourth straight year of deficits. The surplus with the United States reached $63 billion (9 trillion yen).

The continuation of these tariffs is still unsure, as Japanese officials visited Washington D.C. this week to discuss possible solutions. The exact outcome of these talks is unclear, but Trump and Japanese Prime Minister Shigeru Ishiba found the conversation to be constructive.

While the future of Japan-United States trade remains a bit unclear, credit professionals with customers in Japan have yet to see any big changes from the new tariffs. Of the credit managers extending credit in Japan, 33% are offering 31-60-day terms, 27% are offering 1-30-day terms and 20% offer 61-90-day terms, according to FCIB’s Credit and Collections Survey. A fifth of respondents do not extend credit to customers in Japan. Those with customers in Japan find that they are six days beyond terms, on average, with no notable increases or decreases to these delays. Those experiencing delays attribute them to supply chain or shipping issues (33%), central bank issues (17%) and unwillingness to pay (17%). One respondent wrote, “Be sure to know your true legal customer, not DBA or trade name, and know the ultimate parent and family tree (5 C’s of Credit).” Another wrote, “It’s best to have a local contact.”