The newly finalized trade agreement between the United States and Japan has calmed fears of a global trade war and could become a template for other countries negotiating with Washington, according to economists.
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The deal reduces U.S. tariffs on Japanese auto imports from 27.5% to 15% and cuts duties on other Japanese goods from 25% to 15%. Although still significant, the 15% rate is seen as manageable and far less disruptive than previous levels or looming threats.
Economists say the agreement offers much-needed clarity for businesses that have struggled to make investment decisions amid policy uncertainty. “Average tariffs in the U.S. were around 2.5% in 2024, and now they’re closer to 17%,” said Mohit Kumar of Jefferies. “While not ideal, a 15% rate is something the global economy can absorb.”
The deal also includes commitments for Japanese investment and loans tied to U.S.-bound trade, making it the most impactful agreement President Donald Trump has secured so far. It increases pressure on China and the European Union, which both face fast-approaching deadlines in August for settling their own trade negotiations with the U.S.
Global markets responded positively. Japan’s Nikkei stock index jumped 3.5%, while European automakers with large U.S. exposure also surged. Shares of Volvo, BMW, Porsche, Mercedes-Benz, and Volkswagen rose between 4% and 10%.
“This positive momentum is giving investors hope that other large economies can also reach workable agreements,” said MUFG analyst Derek Halpenny. “We’re seeing a range of 10% to 15% emerge as the new standard for tariff levels among major economies.”
While the U.S.-Japan deal has cooled immediate fears, risks remain. The EU still faces the threat of a 30% U.S. tariff if no agreement is reached by August 1. That level would significantly disrupt EU-U.S. trade, with early hopes of a 10% cap now shifting toward a higher compromise.
China is also under pressure, with a looming August 12 deadline that could see tariffs jump to 145% on U.S. goods and 125% on Chinese exports if talks fail or extensions aren’t secured.
“The Japan deal will likely push other Asian countries to accelerate negotiations,” ING said. “We’ve already seen pacts signed with the Philippines and Indonesia, and more deals are expected before August 1.”
Meanwhile, longer-term inflation expectations in the U.S. dipped slightly following the Japan agreement, raising hopes that continued trade progress could ease price pressures and eventually allow the Federal Reserve to consider rate cuts. However, no rate changes are expected at the Fed’s next meeting, and markets don’t fully expect a cut until October.
