Washington, DC – July 7: An assistant picks up a page from a letter in Japan and South Korea, signed by US President Donald Trump, announcing 25% rates from August 1, during the daily press room in Brady’s press room at the White House on July 7, 2025 in Washington, DC.
Andrew Harnik | Getty Images News | Getty images
In the first batch of “pricing letters” sent to trade partners, US President Donald Trump targeted two of the US allies closest to Asia: Japan and South Korea – both are already carrying the weight of existing functions on automotive and steel exports.
Additional prices are still affecting these two economies dependent on exports that are struggling with a slowdown in growth, Japan probably looking at a technical recession, or two consecutive quarters of economic contraction.
Japan and South Korea experienced a gross domestic product contract in the first quarter on a quarter-sur-threeth basis.
While South Korean imports to the United States are facing 25%prices, such as Trump promised in April, the rate on Japan has been increased by 1 percentage point to 25%.
Exports – including services – represented almost 22% of Japan’s GDP in 2023, according to the latest data from the World Bank, and 44% of South Korea GDP in 2023.
Currently, imports of cars and car parts in the United States lead to a price of 25%, while steel and aluminum attract a 50% tax on most countries.
Automobiles are the largest exports in Japan in the United States and are also among the main exports in South Korea. South Korea was also the fourth steel exporter in the United States in 2024, according to the international administration trade of the US trade department.
Japanese Prime Minister Shigeru Ishiba said that the country “would actively have sought the chances of an agreement that benefits the two countries, while protecting the national interests of Japan”. In May, Ishiba said that his country would not accept an agreement that does not see the abolition of automotive prices.
The newly announced prices will reduce Japan GDP by 0.1 percentage point by the end of 2026, according to Norihiro Yamaguchi, economist in Japan at Oxford Economics.
“Since the economy is already suffering from high prices on the car and a high global trade policy, and also low consumption, the impact should not be rejected,” he told CNBC
Yamaguchi said the Japanese economy “will barely increase” in the second half of 2025 and in the first half of 2026, if it did not fall into a recession.
The United States is the largest export market in Japan, with 21.3 Billion in Yen (145.76 billion dollars) of expeditions to the country in 2024, while South Korea exported goods worth $ 127.8 billion to the United States during the same year, and has the United States as the second largest export market.
Reflecting a “more intensified tariff policy position”, the Korean bank in May almost half reduced GDP growth estimates for 2025 to 0.8% compared to the projection of 1.5% of February.
“The resumption of domestic demand has been delayed, while export growth should slow down more due to the impact of American prices,” said BOK.
Frederic Neumann, chief economist of Asia at HSBC, told CNBC that if Japan and South Korea cannot conclude an agreement, these prices will put “winds considerable to growth”.
Japan and South Korea are already faced with slow domestic demand.
Offering a silver lining, Trump said that he was willing to “perhaps consider an adjustment to this letter” if the countries were to open their “so far closed” markets in the United States
Pressure tactics are put in place on South Korea and Japan, said Vishnu Varathan, director general at Mizuho Securities.
“Frustration in the face of the approach most based on Japan principles and holistic (covering sectoral prices) blocked an agreement being a source of frustration for American trade negotiators, and especially for Trump, talks about itself.” He added.
Although Trump has not publicly expressed his anger towards South Korea, Varathan said: “It is not unimaginable that there are collision points similar to that of Japan, thus invoking the letter”.
The markets, on the other hand, seem to raise their shoulders of pricing threats – for the moment. Neumann of HSBC said that Trump’s letters Essentially, is equivalent to an extension of the deadline for three -week pricing negotiations.
“The financial markets take the latest news in their stride, focusing on the possibility that the threatened prices can still be reduced by negotiation,” he said.
