Asian Economies in Rush To Cut Tariff Deals

Asian countries including Japan and South Korea said they’ll keep pushing for a better deal for their exports to the US after President Donald Trump shifted his tariff deadline to August 1st and tweaked the rates he’s set for many economies.

In his first wave of letters to key trading partners, Trump announced levies of 25 percent on goods from Japan and South Korea, with rates for Indonesia and Thailand set at over 30 percent. The US president also signed an executive order holding off the new duties until August 1st.

The extension by Trump leaves economies across Asia — including some of America’s closest allies on the continent — squarely in the US administration’s tariff sights while giving officials a little over three additional weeks to negotiate lower rates. Complicating such accords is the prospect of separate sectoral tariffs on products including cars, chips and pharmaceuticals that are critical industries for economies across Asia.

“For Trump, whether the US has a goods trade deficit with a country is more important than whether the country is an ally,” said David Boling, director of Japan Trade at consultancy Eurasia Group. “Trump’s tariffs will be a drag on regional growth because so many Asian countries depend on the US market for their exports.”

Shares in South Korea jumped more than 1.4 percent and the Nikkei-225 index advanced 0.2 percent. The MSCI regional stock benchmark edged up 0.1 percent, after swinging between small gains and losses earlier Tuesday. The won strengthened, while a gauge of the dollar dipped 0.2 percent.

The 25 percent across-the-board tariff announced by Trump on all shipments from South Korea matches the level that was set to be implemented on July 9. Japan’s new rate is a percentage point higher than that originally announced on April 2.

“It’s regrettable that the US has announced higher tariff rates,” Japanese Prime Minister Shigeru Ishiba said after discussing the state of play with cabinet ministers at a meeting in Tokyo. “We’ll continue talks with the US, protecting our national interests while actively seeking the possibility of a deal and benefits for both the US and Japan.”

South Korea said it will fix rules and regulations to address US demands to lower non-tariff barriers. “We see this letter as a de facto extension of the grace period for imposing reciprocal tariffs until August 1st,” South Korea’s Industry Ministry said in a statement on Tuesday, vowing to accelerate negotiations to reach a mutually beneficial agreement.

Japan and Korea are both dealing with complex domestic circumstances where cutting trade deals might be risky politically. South Korean President Lee Jae Myung only took office on June 4, and elections in Japan’s upper house later this month made Ishiba’s government reluctant to offer too much in concessions.

Asked why Trump had chosen to hit Japan and South Korea first, White House Press Secretary Karoline Leavitt said it was “the president’s prerogative.”

“Those are the countries he chose,” she added.

“If the tariffs stay in place they likely have a major detrimental impact on Japanese companies that export to the US, particularly the automakers,” said James Halse, CEO & CIO at Senjin Capital Pty Ltd. “That negative impact likely cascades up the supply chain to their suppliers in Japan who may not export to the US themselves.”

Japan was initially seen as a promising partner for a quick deal, but the negotiations hit a roadblock over car tariffs. The sector accounts for most of the US trade deficit with Japan while being a key growth driver for Tokyo.

Japan will take all possible measures to mitigate the impact of the 25 percent across-the-board tariffs, Chief Cabinet Secretary Yoshimasa Hayashi said in a regular press conference Tuesday.

Trump also announced 25 percent rates on Malaysia, while Laos and Myanmar would face a 40 percent levy. Other nations hit with levies included Indonesia with a 32 percent rate, Bangladesh with 35 percent, and Thailand and Cambodia with duties of 36 percent.

At an event held later at the White House, Trump said that “for the most part” he was content to simply impose the duties, even as he indicated he was continuing negotiations, including talks with India that could soon wrap up.

Thailand remains optimistic about securing a lower tariff rate than the levy announced by Trump, based on its offer to reduce import tax on most US goods to zero, Finance Minister Pichai Chunhavajira said.

Trump set the levy on Thailand without taking into account its revised proposals to increase market access by removing tariff and non-tariff barriers on a number of goods, Pichai told reporters Tuesday. The latest Thai proposal “is a good deal for the US as Thailand will lower import tariffs on 90 percent of US products,” Pichai said, adding he was “a bit shocked” by the Trump letter setting the tariff unchanged at 36 percent.

Meanwhile, Indonesia said it plans to immediately resume tariff negotiations with the US. Coordinating Minister for Economic Affairs Airlangga Hartarto, who has been leading the talks, is set to arrive in Washington on July 8 and then meet with US representatives, spokesperson Haryo Limanseto said in a statement on Tuesday.

“There is still room to respond as conveyed by the US government,” Limanseto said. “The Indonesian government will optimise the available opportunities to safeguard national interests in the future.”

Taiwan is hopeful it can achieve a bilateral trade balance in its negotiations with the US and enhance bilateral cooperation in multiple areas such as technology and national security, according to a text message statement sent from the presidential office.

Stephen Olson, a former US trade negotiator now with the ISEAS-Yusof Ishak Institute, said there’s still little clarity on what happens next and it is possible the deadline might get pushed back further in August.

“On top of that, negotiations on some of the toughest issues still need to continue,” he said. “So we don’t have an entirely clear picture on what any of these deals will ultimately look like – or if they might unravel.”

By Soo-Hyang Choi and Yoshiaki Nohara

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