What the US-Japan trade pact means for everyone else

Mint

24-07-2025

As details trickle in about the U.S.-Japan trade agreement announced late Tuesday, analysts see a potential path for other trading partners, including South Korea and the European Union, to strike their own deals ahead of an Aug. 1 deadline for tariffs to go into effect.
The U.S. said it would impose 15% tariffs on Japan—lower than the 25% baseline duties threatened and lower than the 25% levies already imposed on their auto exports—and said Japan would invest $550 billion. Trump said the investment would be at his direction, with the U.S. reaping 90% of the profits.
A White House official told Barron's that the 90% referred to returns on investment—like rent on a facility built with a fund financed by Japan—but further details were yet to be hashed out. Many analysts were awaiting that information to see what might be part of this commitment.
Though the deal suggests that baseline tariffs will be higher than the 10% earlier expected as a universal tariff, it raised expectations that the worse-case scenarios of far higher tariffs, or an escalation in the trade war, weren't imminent. The S&P 500 hit a record high of 6352.63.
The Japan deal is likely to light a fire under other trading partners to try to secure deals. Many geopolitical consultants say they expect the European Union and South Korea to hasten efforts to get deals, including on autos. Otherwise, their auto makers would be at a disadvantage, with their auto exports facing 25% tariffs, compared with the 15% Japan has agreed upon.
'More broadly, a lot of foreign governments' objectives have been to get the number below the prohibitive stage—25% to 35% stops most trade. If you get it below 20%, companies can manage it," said William Reinsch, former Commerce Department official and currently a senior advisor at the Center for Strategic and International Studies.
South Korean negotiators have been in Washington, D.C., actively looking to secure a deal, according to trade analysts. The Wall Street Journal also reported Wednesday that the European Union is looking to secure an agreement as well, with tariffs at 15%, compared with the 30% threatened.
'If I'm the European Union, any hopes for 10% are gone and 15% is the focus; if I could mirror a Japan deal, that would be a win," said Owen Tedford, senior analyst at Beacon Policy Advisors. If Japan's agreement serves as a loose framework for deals, Tedford said, the pace of announcements could pick up in the days to Aug. 1.
Analysts took special interest in the reduction in the sectoral tariffs on auto exports Japan managed to negotiate. These sectoral tariffs—both those already in place such as on autos and the 50% on aluminum and steel and those pending on pharmaceuticals, semiconductors, and other areas—have been a major sticking point in many of the trade negotiations.
'It demonstrates that the Trump administration is willing to negotiate on sectoral tariffs," said Monica Gorman, managing director at Crowell Global Advisors and a former White House and Commerce Department official. 'Other countries, including the EU, are almost certainly taking notice."
The Wall Street Journal reported that U.S. trade negotiators appear to be on board with a EU deal that includes lowering the duty on autos to 15%, though Trump hasn't yet signed off on such an arrangement.
There is a precedent for such flexibility. Steel and aluminum levies initially introduced in the first Trump administration were eventually reduced through bilateral deals and the use of quotas, Reinsh said.
Still unclear is whether Japan, or any other country, has been able to get assurances it will receive preferential treatment on the various sectoral tariffs that are pending, as the United Kingdom did in its agreement.
One common theme in agreements is commitments to buy American—investing in the U.S. as the Trump administration tries to bring back manufacturing or purchasing U.S. agricultural products, Boeing planes, or natural gas. But trade veterans are skeptical about the impact of that.
'The history [of such commitments] is that the numbers start out big and end up being very small," Reinsh said. 'Plus, several of these investment commitments have been packaging of commitments made earlier or that were already in the works."
While trade veterans see momentum building for more agreements, they note that most of those so far have been light on details. Instead of the typical text that accompanied past pacts, agreement terms have been mostly outlined in social media posts and comments from officials—with the version of what was agreed upon sometimes not syncing up, as was the case with Vietnam, Reinsh adds.
Trade-deal announcements aren't equivalent to agreements. Investors should expect more negotiations, and more after those.
Write to Reshma Kapadia at [e-mail]