President Donald Trump announced tariffs of 25 percent on goods from Japan and South Korea beginning on Aug. 1, as he moved to impose unilateral rates on countries that have not yet secured trade deals with his administration.
The two Asian nations were the first announcements in what the president promised would be a flurry of demand letters and trade deals announced on Monday.
Trump’s second-term rush to overhaul US trade policies has served as a steady source of uncertainty for markets, central bankers and executives trying to game out the effect on production, inventories, hiring, inflation and consumer demand — routine planning that’s hard enough without costs like tariffs that are on one day, off the next.
In the end, Japan and South Korea’s rates, shared on his Truth Social platform, are largely in line with what he had already announced the two nations were likely to face. After a 90-day reprieve from his so-called reciprocal tariffs, which initially hit Japan with a 24 percent rate and South Korea with a 25 percent levy, Trump lowered those duties to 10 percent to allow time for negotiations.
Trump warned the nations against retaliation in his letters, saying any actions would be met with a response from the US.
“If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by will be added onto the 25 percent that we charge,” Trump said.
Trump also said that the 25 percent rates did not include any sectoral-specific tariffs that the administration had or would separately implement on goods imported in key industries.
White House officials did not say whether additional demand letters would be released Monday, or if the president still planned to announce trade deals with other nations. Treasury secretary Scott Bessent said earlier in an interview with CNBC that he expected to “have several announcements in the next 48 hours.”
Trump’s levies will help fill the Treasury’s coffers at a time when investors are worried about the nation’s mounting debt, particularly after Congress passed much of the president’s economic agenda in a $3.4 trillion tax cut and spending package last week. While US stocks reached record highs on Friday, the dollar has slumped and longer-term borrowing costs remain elevated.
Japan and Korea were the US’s fifth- and seventh-largest sources of US imports of last year — accounting for almost 9 percent of the total.
In fact, the burden of tariffs falls to American importers, which must contend with tighter profit margins, weigh raising prices on consumers or seek discounts from their foreign suppliers. “All of that new revenue is just a tax on US businesses,” Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, wrote in a LinkedIn post Friday.
“Global uncertainty continues to prevail at record-high levels,” Allianz Research economists wrote last week in a report that sees world economic growth growing this year by 2.5 percent — the weakest since 2008 excluding recessions. “This will lead to a synchronized decline in the economic cycle in both developed and emerging markets.”
On April 2, Trump held a Rose Garden ceremony announcing steeper levies on more than 50 trading partners ranging as high as 50 percent – a shock to the economic outlook that sent financial markets into a tailspin and sparked fears of a recession. A week later, he suspended those peak rates.
The negotiating tracks have been different for the US’s three largest trading partners — Mexico, Canada and China. Beijing and Washington have negotiated truces that lowered tariffs on Chinese products that soared to 145 percent and eased export controls on key supplies. As partners in the US-Mexico-Canada Agreement, the two US neighbors aren’t subject to the reciprocal tariffs and instead are trying to negotiate lower rates on sectoral levies.
Bloomberg Economics’ US trade uncertainty index has come off its April peak, but it still higher than it was when Trump was elected in November.
On top of market jitters and economic headwinds, legal challenges offer a potential check on the reciprocal tariffs, which Trump declared under executive authority known as the International Emergency Economic Powers Act, or IEEPA.
The US Court of International Trade ruled on May 28 that the vast majority of Trump’s levies were issued illegally under IEEPA and ordered them blocked. A day later, an appeals court gave the Trump administration a temporary reprieve from the ruling and decided that the tariffs can remain in place until it hears the case, scheduling the arguments for July 31.
Yet the Trump administration is using another presidential power to impose tariffs — Section 232 of the Trade Expansion Act — on specific sectors so far including autos, steel and aluminium.
Other 232 sectoral cases are in the works, potentially allowing Trump to cover a wide range of US imported raw materials as well as finished consumer goods should the IEEPA levies get struck down by the courts. Trump made clear those tariffs could stack, describing the latest levies as “separate from all Sectoral Tariffs.”
Another friction point for Trump on tariffs is the Federal Reserve. Jerome Powell, the chair of the US central bank, has held off on lowering rates this year — despite intense pressure and name-calling from Trump — in part to determine whether tariff-driven price hikes might evolve into more persistent cost-of-living pressures.
Bloomberg Economics estimates that if all reciprocal tariffs are raised to their threatened level on July 9, average duties on all US imports could climb to around 20 percent from less than 3 percent before Trump’s inauguration in January. That would add to growth and inflation risks for the US economy.
Between higher tariffs, oil prices and immigration restrictions in the US, “the bottom line is that we should see inflation move higher over the coming months,” Torsten Slok, chief economist with Apollo Global Management, wrote in a note Sunday.
By Josh Wingrove and Brendan Murray
Learn more:
Trump Sets August 1st Start for Tariffs Ahead of Wednesday Deadline
New trade deals and tariff warnings are set to be announced, with negotiations ongoing to avoid punitive measures on exports to the US.
