US-Japan trade deal averts worst for global economy

Reuters ^ | July 23, 20258:15 AM CDT | Balazs Koranyi and Francesco Canepa

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Summary

• Stocks rally, driven by auto makers
• China, EU face looming deadlines
• Trade deal not seen adding to inflation

FRANKFURT, July 23 (Reuters) - Japan's trade agreement with the U.S. could serve as the benchmark for many other deals currently being negotiated with Washington, and the global economy could just about support the 15% level agreed overnight, economists said.

Tokyo's deal with the U.S. lowers tariffs on auto imports to 15% from levies totalling 27.5% previously. Duties that were due to come into effect on other Japanese goods from August 1 will also be cut to 15% from 25%.

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The deal with the world's fourth-largest economy, which includes commitments for U.S.-bound investment and loans, is the most significant of a clutch of pacts U.S. President Donald Trump has concluded to date. It raises pressure on China and the European Union, which both face crucial August deadlines.

Although 15% is still a significant duty, such a level is still manageable and less damaging than the volatility created by the uncertainty, which has made it near impossible for firms to plan investments, some economists argue.

"Average tariffs for the U.S. were around 2.5% for 2024 (while) currently, average tariffs stand around 17%," Mohit Kumar at Jefferies said, referring to the rise in global duties since Trump's so-called "Liberation Day" announcement on April 2.

"Our base case remains that when the dust settles, we could see average tariffs around 15%, though recent deals suggest that this number could be slightly higher," Kumar said. "While a negative from a macro point of view, the world can live with 15% or so tariffs."

Financial markets heaved a sigh of relief on Wednesday.

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So far:

Japan
U.K.
Vietnam
Indonesia
Philippines

China and EU supposedly getting close to a deal. Once these two are secured, Trump will will be in the driver’s seat for the rest.

Canada and Mexico are not nearly as bad as the rhetoric would suggest, as most goods are exempt under USMCA. Still, once the EU signs, they will have less leverage. Even less after China signs.

South Korea and Taiwan, both of whom are dependent on the US for their very existence, really need to step up. Asia has been worse than Europe as far as defense spending and counting on Uncle Sugar.

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