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Donald Trump has once again raised the specter of imposing steep “reciprocal” tariffs on major trading partners, despite granting a three-week reprieve for countries to engage in trade negotiations with the US. In letters sent to Japan and South Korea, two of the world’s largest economies, Trump announced plans to impose 25% tariffs starting on August 1. Additionally, South Africa would face 30% tariffs, with several other countries also slated to be hit with significant levies.
The announcement of these tariffs, reminiscent of those unveiled during Trump’s controversial “liberation day” declaration in April, sent shockwaves through global financial markets. While the implementation of the reciprocal tariffs was delayed until August 1, the impact was already being felt, with the S&P 500 down 1.2% and currencies of affected countries depreciating against the US dollar.
In letters posted on his Truth Social platform, Trump cited the US goods trade deficit with Japan and South Korea as a major economic and national security threat. He warned that any retaliatory increase in tariffs by these countries would only result in additional charges on top of the initial 25% levy. However, Trump did leave room for negotiation, suggesting that the tariffs could be adjusted based on the countries’ willingness to open their markets.
In addition to Japan and South Korea, Trump also announced steep tariffs against Malaysia, Kazakhstan, Laos, and Myanmar. While the US already has sectoral tariffs in place, including a 25% tariff on autos and auto parts and a 50% tariff on steel and aluminum imports, the new tariffs are expected to impact a wider range of goods and industries.
Negotiations between the US and Japan have been ongoing, with proposals aimed at addressing the trade deadlock, such as Japan purchasing more US energy and agricultural products. However, Tokyo has insisted on a full exemption from the 25% auto tariffs. Meanwhile, trade talks with South Korea have been complicated by political turmoil following the impeachment of former President Yoon Suk Yeol.
On the European front, the EU is expected to sign a temporary trade deal with the US, keeping tariffs at 10% while discussions continue. Plans are also in place to reduce the 25% tariff on vehicles, although the fate of the 50% steel tariffs remains uncertain.
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