Trump deals bring some clarity for world's manufacturing base
Trump on Tuesday (Jul 22) announced a deal with Japan that sets tariffs on the nation's imports at 15 per cent, including for autos, by far the biggest component of the trade deficit between the countries.
A separate agreement with the Philippines set a 19 per cent rate, the same level as Indonesia agreed and a percentage point below Vietnam's 20 per cent baseline level, signalling that the bulk of South-east Asia is likely to get a similar rate.
At the same time, US Treasury Secretary Scott Bessent said he will meet his Chinese counterparts in Stockholm next week for their third round of talks aimed at extending a tariff truce and widening the discussions. That suggests a continuing stabilisation in ties between the world's two largest economies after the US recently eased chip curbs and China resumed rare earths exports.
'We are getting along with China very well,' Trump told reporters on Tuesday. 'We have a very good relationship.'
Throw it all together and a level of predictability is finally emerging after six months of tariff threats that had at one point jacked up tariff levels to 145 per cent on China and nearly 50 per cent on some smaller Asian exporters.
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Investors cheered the moves, with Asian shares rising the most in a month and contracts for the S&P 500 up 0.2 per cent. The Nikkei-225 index in Japan jumped 3.2 per cent, with Toyota Motor and other carmakers leading the gains.
Back in April, Trump hit the pause button on the steepest levies after a rare combination of weakening US stocks, bonds, and the US dollar showed investors were unnerved by his protectionist salvos. That bought time for policymakers from Tokyo, Manila and across the globe to negotiate more palatable deals.
Although the latest deals bring some relief, key questions remain. The Trump administration is still considering a range of sectoral tariffs on goods such as semiconductors and pharmaceuticals that will be critical for Asian economies, including Taiwan and India, both of which have yet to announce tariff agreements with the US.
South Korea is also more exposed to sectoral tariffs, even though the Japan deal provides a potential template for new President Lee Jae Myung.
As Trump moves quickly on talks with countries accounting for the bulk of the US trade deficit, he has said he may hit around 150 smaller countries with a blanket rate of between 10 per cent and 15 per cent.
With some certainty on tariff levels now emerging, businesses with complex supply chains across Asia and still reliant of the US consumer can start to game out how they will shift operations to minimise the hit to sales. For US consumers who have so far been spared the tariff ticket shock, economists warn there's likely to be some pass-through in the months ahead.
The front-loading of shipments from Asia to the US to get ahead of the incoming levies will likely slow once the new rates kick in. While there's relief that tariff rates for South-east Asian economies and 15 per cent for Japan are lower than some of Trump's earlier threats, the reality is that they are far higher than they were before he took office.
The latest deals 'continue the trend of tariff rates gravitating towards the 15 to 20 per cent range that US President Donald Trump recently indicated to be his preferred level for the blanket rate instead of 10 per cent currently', Barclays analysts including Brian Tan wrote in a note. That skews risks to GDP growth forecasts for Asia 'to the downside', they wrote.
US Federal Reserve chair Jerome Powell has argued he wants to see where tariffs land and how they filter through the economy before cutting interest rates – much to the annoyance of Trump.
For now, Trump is hailing a win on trade, and investors seem overall relieved.
'I just signed the largest trade deal in history, I think maybe the largest deal in history, with Japan,' Trump said at an event at the White House on Tuesday after announcing the deal on social media. 'It's a great deal for everybody.' BLOOMBERG
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