Trump’s tariffs present more economic problems for South Korea and Japan

In the first batch of Tariff letters sent to trading partners, US President Donald Trump has headed two of the closest allies in the United States in Asia: Japan and South Korea – both already carry the burden of existing car and steel export obligations.

Additional tariffs will harm these two export -dependent economies that fight growth slow down, with Japan probably staring at a technical recession or two straight fourth of economic shrinkage.

Both Japan and South Korea He could see a gross internal product contract for the first quarter of the quarter.

While the US South Korean imports faced 25% of tariffs, the same as Trump promised in April, the percentage of Japan was increased by 1 percent to 25%.

Exports – including services – is almost composed 22% of Japan’s GDP in 2023According to the latest World Bank data and 44% of South Korea’s GDP in 2023

Current imports of cars and car parts in the United States have a 25% tariff, while steel and aluminum attract a 50% fee for most countries.

Cars are Japan’s largest exports to the United States and are also among the best exports in South Korea. South Korea was also The fourth largest exporter of steel for the United States In 2024, according to the International Commercial Administration, within the US Department of Commerce.

Japanese Prime Minister Shigeru Ishiba According to messages The country is “actively looking for the chance for an agreement that is beneficial to both countries while protecting Japan’s national interest.” In May, Ishiba said that his country will not accept a deal that does not see the removal of car rates.

The newly announced tariffs will reduce Japan’s GDP by 0.1 percentage points by the end of 2026, according to Norihiro Yamaguchi, a leading Japan economist in Oxford Economics.

“Given that the economy is already suffering from high rates for car and increased global trade policy uncertain and also low consumption, the impact should not be rejected,” he told CNBC

Yamaguchi said that Japan’s economy would “grow” in the second half of 2025 and in the first half of 2026, if it would not be recession.

USA are the largest export of Japan, with 21.3 trillion yen ($ 145.76 billion) shipments to the country in 2024 while South Korea exports goods worth $ 127.8 billion to the US In the same year, he considered the US to be its second largest export market.

Reflecting a “more prosecuted position of tariff policy”, Korea’s bank in May Almost reduced GDP growth estimates for 2025 to 0.8% of February 1.5%.

“Restoration of internal demand has slowed down as export growth is expected to slow down further due to the effects of US tariffs,” BO said.

Frederick Neumann, an Asia chief economist in HSBC, told CNBC that if Japan and South Korea fail to reach a deal, these tariffs would be “significant winds for growth.”

Japan and South Korea are already facing a sluggish internal demand.

Offering a silver lining, Trump said he was ready to “maybe consider adjusting this letter” if the countries open their “so far closed” markets

Pressure tactics are attracted to South Korea and Japan, said Vishnu Varan, Managing Director of Mizuho Securities.

“The disappointment of Japan’s more general and overall approach (covering sectoral tariffs), the conclusion of a deal that is a source of powerlessness for US trade negotiators and essential to Trump speaks for itself.” He added.

While Trump has not publicly expressed anger to South Korea, Varat said that “it is not unthinkable, that there are adhesive points similar to those of Japan, thus referring to the letter.”

In the meantime, the markets seem to shrug the tariff threats – for now. Neumann on HSBC said Trump’s letters In essence, it is an extension of the deadline for Tariff Negotiations by three weeks.

“Financial markets accept the most news in their step, focusing on the possibility of threatened tariffs still being removed through negotiations,” he said.