Donald Trump has taken the plunge and officially announced new tariffs that will hit Japan and South Korea. He followed that with letters to the heads of each country, detailing the exact rates. Starting July 1, all Japanese cars are subjected to a 24% tariff, while Korean vehicles will pay a 25% tariff starting this August. This decision coincides with a widening trade deficit for the United States with both countries.
In his correspondence Trump focused on the critical role of domestic manufacturing. He called on both nations to center their manufacturing of goods in the United States to prevent having these tariffs imposed. The new tariffs recently announced by the Trump administration are intended to address these trade imbalances. Unfortunately, this strategy has come under fire from almost every sector.
The recently announced tariffs come on the heels of a temporary halt for “reciprocal” tariffs that were put in place last April. Trump warned that this pause will end on July 9, and he indicated that he may send additional letters to other countries if necessary. He further warned that if Japan or South Korea retaliates against U.S. trade, the tariffs should be expected to grow beyond 25%.
“Please understand that the 25% number is far less than what is needed to eliminate the Trade Deficit disparity we have with your Country.” – Donald Trump
The move has already had immediate, seismic repercussions for U.S. financial markets. In the wake of Trump’s announcement, the S&P 500 index lost 0.87% of its value, with the Nasdaq losing even more ground at 0.9%. These steep drops demonstrate the serious effects that investors fear as trade war erupts and escalates, namely a negative effect on economic growth.
Trump reiterated that there are no tariffs coming if Japan or South Korea makes a good deal with United States. He’s obviously made a call for ambitious deals with these countries. He noted that current tariff rates are subject to change. How much this impacts would be very much contingent on the developing relationships with each of these countries.
“These Tariffs may be modified, upward or downward, depending on our relationship with your Country. You will never be disappointed with The United States of America.” – Donald Trump
The administration’s approach to trade with Japan and South Korea reflects a broader trend in U.S. trade policy, which has increasingly focused on reducing deficits and promoting domestic manufacturing.
Yet, as the July 9 deadline looms, Japan and South Korea must make a key decision in responding to these new tariffs. Will they start negotiations to remove some of these arbitrary rates that they have imposed on us?
“If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 25% that we charge.” – Donald Trump