U.S. tariff hike raises pressure on Asian allies

July 09, 2025 (MLN): U.S. President Donald Trump has targeted Japan and South Korea, two of America’s closest allies in Asia in the first round of newly issued “tariff letters,” escalating existing trade tensions.

Both countries are already bearing the brunt of current U.S. duties on auto and steel exports, and the additional tariffs are expected to further strain their export-dependent economies.

The new measures come as Japan and South Korea grapple with slowing economic growth. Both nations reported quarter-on-quarter contractions in first-quarter gross domestic product (GDP), with Japan now likely facing a technical recession.

Trump’s updated tariff policy raises duties on Japanese imports by one percentage point to 25%, aligning them with the 25% tariff already levied on South Korean imports, as CNBC reported.

Automobiles, the largest export category for Japan and a major one for South Korea, are subject to a 25% tariff, while steel and aluminum face a 50% levy for most countries.

South Korea was the fourth-largest exporter of steel to the U.S. in 2024, according to the U.S. Commerce Department’s International Trade Administration.

In 2024, Japan exported goods worth 21.3 trillion yen ($145.76 billion) to the U.S., its largest export market. South Korea exported $127.8bn worth of goods to the U.S., its second-largest market.

Exports of goods and services accounted for almost 22% of Japan’s GDP and 44% of South Korea’s GDP in 2023, based on World Bank data.

Japan’s Prime Minister Shigeru Ishiba expressed a desire for a mutually beneficial agreement but maintained that Japan would not accept a deal that did not eliminate auto tariffs.

Meanwhile, the Bank of Korea responded to the intensified tariff stance by nearly halving its 2025 GDP growth forecast in May to 0.8%, down from the 1.5% projection made in February.

The central bank noted that domestic demand recovery has been delayed and export growth will likely slow further due to U.S. tariffs.

Norihiro Yamaguchi, Lead Japan Economist at Oxford Economics, estimated that the newly announced tariffs would shave 0.1 percentage point off Japan’s GDP by the end of 2026.

He warned that the Japanese economy may see negligible growth or even slide into recession in late 2025 and early 2026.

Frederic Neumann, Chief Asia Economist at HSBC, also cautioned that failure to reach a deal with the U.S. would present “considerable headwinds to growth” for both Japan and South Korea, which are already contending with weak domestic demand.

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