Tariff update: Trump’s tariff blow to Japan and South Korea as markets wilt
Trump has started telling the US’s main trading partners what tariff rate he will impose on their imports. First up is Japan and South Korea. Both countries will face 25% tariffs, which is a step up from the current 10% rate, and a blow for hopes that Trump would scale back tariff threats and de-escalate a trade war.
Risk sentiment declines as tariff news weighs
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Create account Try a demo Download mobile app Download mobile appUS stocks have hit session lows on the back of this news, and the dollar has extended Monday’s gains. The yen is now the weakest performer in the G10 FX space and is lower by nearly 1% vs. the USD. The South Korean won is not faring much better as FX traders ditch currencies that are being targeted by Trump’s trade policy. EUR/USD is also at session lows and is heading back towards $1.17.
The President posted the letter that he sent to the South Korean leader on his Truth Social account. He said that any retaliatory tariff would result in the US matching that rate plus the 25% rate he announced on Monday. The letter was aggressive in its tone, it said that the tariff rate is designed to address years of trade imbalances, and it threatened higher tariff rates if South Korea attempts to evade the 25% rate by transshipping to third countries.
Trump attempts to attract manufacturing to the US
The letter also said that tariff rates would fall to 0%, if South Korean companies decided to manufacture their product in the US. The letter also suggested that South Korean companies would get approval to manufacture in the US in a matter of weeks, however, it is far from clear that they will want to do this.
The EU waits with bated breath
Leading up to this announcement, we knew that negotiations between US and Japanese trade envoys had not gone well. However, it is unclear whether a 25% tariff rate will be the peak. We have not heard much about how negotiations with the EU have gone, which increases the uncertainty about tariff Trump will impose on the bloc.
The tariffs imposed on South Korea and Japan will be separate from sector tariffs, suggesting that Trump could announce more sector tariffs in the hours to come, which will sit alongside country-specific tariffs. This could hit the EU hard, especially if he widens sector tariffs to include pharma exports.
Markets spooked by Trump’s tough talk on tariffs
After recently hitting record highs, stock markets in the US and elsewhere may have been underestimating the risks from the reciprocal tariff announcements. Thus, as we wait for more tariff announcements, we could see risk sentiment start to fade from the markets. For now, the dollar is benefitting as the yen and the won sag under the weight of tariffs, and bond yields are rising around the world on the back of the expected inflationary effect from tariffs.
Once again, Trump is playing hardball when it comes to trade policy, and markets have been jolted awake to the risks this pose to global growth.
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