Firm Heterogeneity in Responses to Trump Tariffs 2.0: Evidence from Japanese manufacturing firms

This study uses an original firm-level survey fielded during the Trump 2.0. negotiations to examine how firm characteristics relate to (i) whether and how strongly firms perceive tariff impacts and (ii) whether and how they adjust (including measures under consideration). Impacts are widespread among U.S. exporters and are largest for firms engaged in related-party (intrafirm) exports, consistent with rigid internal transactions and compliance constraints (e.g., rules of origin, pricing, regulation). Among firms with limited direct exposure to North America, more upstream firms report stronger impacts, suggesting supply-chain spillovers beyond direct exports. Adjustments are more selective, rising with firm size, and are most advanced among large, high-productivity firms. Adjustment menus differ by exposure, with intrafirm exporters favoring U.S. localization via foreign direct investment, arms-length exporters relying more on price/cost adjustments, and China/Asia exporters shifting toward third-country markets. Policy should lower export-related fixed costs for smaller firms and expand support for third-country expansion.