By Kevin D. Williamson
Monday, August 03, 2026
Japan is generally a low-tariff country, which ought to
come as no surprise: Japanese people are famously not stupid.
Being an island only very lightly blessed with domestic
natural resources other than its hardworking and productive people, Japan has
to import virtually all of its fuel (both for powering vehicles and for
generating electricity), the majority of its food, and hundreds of billions of
dollars’ worth of industrial inputs, machinery, electronics, and
pharmaceuticals. Island nations with similar resource constraints tend to be
either one of two things: free-traders or poor. Historically, even island
nations with more abundant natural resources, such as England at the height of
its powers, turn to international trade almost instinctively.
With the exception of a few culturally sensitive items
such as rice, Japan has long followed an economic policy of forthrightly
welcoming imports and pursuing trade relationships with partners around the
world. Contrary to the reliably ignorant pap one hears from the Trump
administration and its groveling media sycophants (did you hear Sean
Hannity’s eulogy for Lindsey Graham?) Japan imports goods equivalent
to about a quarter of its GDP most years, whereas in the United States,
supposedly a poor waif victimized by the free-trade regime created in the 20th
century (by the United States), that figure typically is more like 14 percent,
though it tends to edge up a little bit when the U.S. economy is doing
particularly well.
The notion that protecting a nation’s economy from
imports is a way to make that nation rich is belied by the facts, with very
wealthy countries often having high levels of imports (nearly 70 percent of GDP
for both the Swiss and the Dutch) and poorer countries often enjoying
relatively little in the way of imports (14 percent for Haiti, 17 percent for
Nigeria). One can find many counterexamples to that, of course: rich countries
with relatively low imports (the United States) and poor countries with high imports
(dirt poor Kiribati has imports equivalent to 98 percent of GDP), because the
stronger relationship is not between affluence and imports but between such
factors as the size and diversity of the economy, relative strength of the
currency, stability of government, openness to trade, etc. and imports. Both
Japan and the United States have lower levels of imports than the average
high-income country (around 31 percent) and, in that respect, more closely
resemble lower- and middle-income countries.
No surprise, then, that tariff collections contribute
almost nothing (about 1 percent of total revenue) to Japan’s government
finances, which are sustained by the personal income tax, the corporation tax,
and, most important, the consumption tax, which at one-third of government
revenue is the largest single contributor to Japanese public coffers. And
Japan—which already suffers from excessive government debt, amounting to 230
percent of GDP—is about to substantially cut that consumption tax, reducing
the rate on food and beverages from 8 percent to 1 percent for two years.
Why 1 percent? That’s an interesting tidbit. The
government of Sanae Takaichi apparently had first considered suspending the consumption tax on food
entirely for two years, but the difficulty of reprogramming all of the
nation’s cash registers and retail software once for the suspension and then
again for the reintroduction of the tax in two years was such that it was
judged to be more economically efficient to cut the rate to 1 percent.
Transaction costs—they can sneak up on you in non-obvious ways.
Even reducing the rate to 1 percent instead of 0.00
percent will impose heavy costs on the Japanese treasury, with forgone tax
revenue amounting at least to something on the order of $61 billion over the planned two-year reduction. That’s a
revenue hit of almost 6 percent of total government income just from reducing
the consumption tax on food and beverages while leaving it at its current level
for everything else. Japan already has demographic challenges, high debt,
relatively low taxes (government revenue is about 20 percent of GDP, as opposed
to something more like 30 percent in France, Canada, or Australia), a weak
currency, an insufficient work force, a business culture short on American-style
innovation and slow to adapt to new global realities, and, hence, three decades
of economic stagnation: In a situation such as Japan’s, economic stimulus does
not come cheap.
Japan is hurting particularly intensely at the moment
thanks in no small part to—not to put too fine a point on it—us.
Donald Trump’s illegal, idiotic, and incompetently
managed war in Iran is imposing relatively mild economic costs on the United
States—for now. We have had sustained high inflation since the COVID era, and
the pain has been widespread and persistent, and what the Iran war has added is
mainly—if I may speak on behalf of my people—a redneck tax, by which I mean an
economic burden that is felt most directly by guys now paying $255 for an
all-the-way-from-E fill-up for a Ford Super Duty diesel. But high diesel prices
have a way of getting spread around the U.S. economy: Basically everything
Americans buy moves around by rail or by truck or by a combination of rail and
truck, and what our freight trains have in common with our long-haul trucks is
that they pretty much all run on diesel: diesel-electric systems for the trains
and regular-ol’ diesel internal-combustion engines such as the Cummins X15 and
Volvo D13 powering the big rigs.
But the costs imposed on Japan have been large and
immediate. The United States has a large and diverse domestic energy industry
(thank your neighborhood fracking crew), while Japan relies almost exclusively
on Middle Eastern oil shipped through the Strait of Hormuz. Japan is the
world’s second-largest single importer of liquefied natural gas, which comes
from most of the same places as the oil and via the same route. But it is not
only petroleum fuels: The war has disrupted Japanese shipping in many other
ways, leading to shortages not only of hydrocarbon products such as naphtha but
also such common commodities as aluminum. This has led to shortages touching things
Americans rarely think about, such as ink: One Japanese snacks company switched
to black-and-white
packaging in the name of economy. Another snacks company suspended
production of one line of goods because it could not secure enough polystyrene
containers for packaging. Higher costs for components and materials helped to
send Toyota’s profits falling by nearly half in the fourth-quarter results reported in
May—and Trump’s destructive tariffs put a brake on the firm’s U.S. sales,
too. Toyota’s problems are not a faraway concern: Toyota employs some 50,000
Americans here in the United States, which is more than the Ram, Jeep, and
Dodge brands combined, along with the rest of their Stellantis
stablemates.
Washington is always looking to tidy things up in the
Middle East—This one is our last misadventure there, honest!—before
making that “pivot” to Asia our foreign policy solons have been talking about
since the waning days of the so-called war on terror. But if you think of that
pivot as a pirouette, part of a dance, who is going to be our most attractive
dance partner when the time for turning comes?
If not Japan, then the Republic of Korea—which has, if
anything, been hit harder by the Iran war than Japan has, suffering
an unprecedented crash in its stock market, a severe devaluation of its
currency, supply disruptions for its all-important semiconductor industry,
energy shortages, and more. The OECD forecast took 0.4 percentage points off
its expected growth for South Korea, the biggest hit for any advanced economy.
South Korean authorities are facing a three-headed dragon in the form of high
interest rates, high inflation, and a weak currency. And that’s assuming that
they can scrape together enough fuel to keep the lights on and the trucks
moving.
But Japan probably should be the larger concern for
Washington, if only because Japan has more than twice the population and more
than twice the economic output of the Republic of Korea. If the pivot to Asia
is about containing and counteracting Chinese power and Beijing’s hegemonic
aspirations, these are the partners we are going to need. And they are taking
it in the shorts because somebody convinced Donald Trump—who is, it cannot be
overemphasized, an utter fool and a geopolitical illiterate—that Iran could be
knocked over with as little drama or risk as our lark of a kidnapping-coup in
Venezuela.
How it came to be that the Trump administration launched
a war on Iran without having a plan for controlling the Strait of Hormuz is
something of a mystery; the smart analysts surmise that all of our existing
protocols for controlling the strait (a scenario endlessly war-gamed by U.S.
military and intelligence leaders) assumed the presence of ground troops, at
least on the northern shore of the waterway, while the Trump administration has
taken that off the table as a matter of pure political cowardice. At first mildly hawkish vis-à-vis Saddam Hussein’s
regime in Iraq, Trump was a johnny-come-lately critic of that war and of George
W. Bush’s prosecution of it, and he does not want to be seen now as having
instigated an even less profitable version of that war—especially now that the
Iran war is the Iraq war, too, with Saudi Arabia and the U.S. attacking Iran’s proxy forces in
Iraq.
If the United States wishes to maintain its leading
position in the world, it is going to need allies—and not only the European
democracies that Donald Trump and J.D. Vance and the rest of that towering
inferno of jackassery go out of their way to insult and abuse, to say nothing
of the other two countries of North America, which have been abused with at
least equal stupidity. We are going to need Middle East players such as the
United Arab Emirates and Asian powers such as Japan and South Korea.
What do those countries all have in common? They are
paying high prices for a war they did not choose, that they were in the main
not even much consulted about, and that they know—because they are famously
not stupid—is being conducted in the most mincingly craven way by American
leaders who do not know what to do and who wouldn’t have the guts or the honor
to do the right thing if they knew what it was.
(A Little More)
Economics for English Majors
Writing in the Wall Street Journal—really, the Wall
Street by-God Journal!—Harriet “One Letter Away from Sorry” Torry
offers up this remarkable paragraph:
GDP reflects the total of all
spending. But since some of that spending is on imported products, rather than
things made in the U.S., imports are considered a drag on GDP.
No, no, no—a thousand times: no.
The thing about GDP is that the D stands for something.
Statisticians subtract imports from GDP not because
imports are “a drag on GDP” but because they have no bearing on GDP whatsoever.
The subtraction is necessary because spending on imports already is counted in
the other GDP variables: government spending, consumption, and investment. As
our friends at the St. Louis Fed put it:
When the Bureau of Economic
Analysis (BEA) measures economic output, it categorizes spending with the
National Income and Product Accounts (NIPA). Some of this spending, which is
counted as C, I, and G, is spent on imported goods. As such, the value of imports
must be subtracted to ensure that only spending on domestic goods is measured
in GDP. For example, $30,000 spent on an imported car is counted as a personal
consumption expenditure (C), but then the $30,000 is subtracted as an import
(M) to ensure that only the value of domestic production is counted. As such,
the imports variable (M) functions as an accounting variable rather than an
expenditure variable. To be clear, the purchase of domestic goods and services
increases GDP because it increases domestic production, but the purchase of
imported goods and services has no direct impact on GDP.
For pete’s sake, this is the Wall Street Journal—not the Trump administration’s trade office.
In Closing
Friday-night news dump alert!
Federal prosecutors late last week moved to dismiss
charges against supposed reflecting pool vandal David Hearn. In the least
surprising development of the week, the former Fox News grotesque who runs the
U.S. attorney’s office for the District of Columbia confirmed that the charges had been dropped because the
mess at the pool was the “result of a botched installation and not vandalism.”
Everybody knows that. Everybody knew that when the DOJ charged David Hearn with
a felony because nobody had the guts to tell Donald Trump that, once
again, he’d picked incompetent people to do a job that subsequently was done
incompetently. Trump is, of course, having a temper tantrum about this.
Using the DOJ as a political weapon is bad enough—but
using it as a therapeutic tool for our neurotic and infantile president is
something else.
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