Trump Announces Trade Deal With Japan as Tariff Deadline Looms

Traders on the floor of the New York Stock Exchange in New York City. (Michael M. Santiago/Getty Images)

After months of being whipsawed by trade-related developments, investors appear relatively calm ahead of the Aug. 1 deadline for tariffs to hit many trading partners. But trade lawyers and analysts warn that the deadline could create another trade war scare—this time with the European Union.

When the Trump administration rolled out its sweeping tariffs in early April, officials talked about striking 90 deals in 90 days. Instead, U.S. and China ratcheted tariffs to three-digit levels and retaliated against each other, leaving markets rattled before the current detente that paused tariffs until Aug. 1.

Further de-escalation looks likely. Treasury Secretary Scott Bessent on Tuesday told Fox Business that he was meeting with his Chinese counterparts next week, and hinted at the possibility of a deadline extension. He said he expects a rash of trade deals, and though the Aug. 1 deadline was a hard one, countries could keep negotiating.

International trade lawyers and political consultants caution that the administration isn’t likely to back down, with trade fights ahead and rates are broadly headed higher.

“Given how well the market and economy are currently doing, I would expect a more aggressive posture on trade in the near term,” says Ryan Majerus, a partner at King & Spalding, who previously worked in the Commerce Department and the office of the U.S. Trade Representative. “Extensions on the current reciprocal tariff negotiations are unlikely, given negotiations can continue after tariffs are imposed.”

Political consultants and analysts expect talk of agreements and updates over the next week, with a couple deals possibly announced ahead of the deadline, and a swath of countries seeing higher tariffs on the deadline—and potential retaliation quickly following.

Up until this week, the U.S. had only struck a foundational deal with the United Kingdom and a pact with Vietnam that had yet to be detailed. But on Tuesday, President Donald Trump announced more agreements—including a framework pact with Indonesia to further negotiate and a deal with the Philippines for a 19% tariff on imports to the U.S.
Late Tuesday, Trump on social media said he had struck a deal with Japan that included commitments from Japan to invest $550 billion “at his direction” and that opens up Japan’s markets for U.S. cars, trucks, rice and other agricultural products. Japan also agreed to pay a tariff of 15%, according to Trump. That’s lower than the 25% Trump indicated earlier this month in a letter setting rates. Further details—including what would happen to auto tariffs—weren’t disclosed.

One major sticking point in negotiations are sectoral tariffs imposed—or pending—from a spate of investigations the administration launched under Section 232 of the Trade Expansion Act looking at national security concerns. That includes auto tariffs on Japan.

The amount of uncertainty over deadlines and other types of tariffs—including those on autos, aluminum and steel as well as those still looming on pharmaceuticals, semiconductors, timber and lumber and critical minerals—have complicated negotiations. The U.S. began investigations about national security concerns in these sectors months ago, with many completed but reports not yet issued.

Major trading partners have been unwilling to strike an agreement until they know what tariffs they may be subject to on this front since they often deal with critical industries for their economies—including pharmaceuticals for Europe and India, timber and lumber for Korea and Canada, semiconductors for Korea and Taiwan, autos for Japan and critical minerals like silver and platinum for India.

While the April tariffs announced by Trump under the International Emergency Economic Powers Act are a problem, these sectoral tariffs pose an “existential risk” for many countries since they target critical industries and are likely to be more durable, says Henrietta Treyz, director of economic policy research at Veda Partners.

The biggest risk lies with America’s largest trading partner: the EU. Analysts are skeptical the EU will be able to strike some agreement, with 20% tariffs likely going into effect Aug. 1. That is likely to draw retaliation, with the EU prepping levies on about $100 billion of imports, including Kentucky bourbon and other liquor; steel and aluminum; tobacco and agriculture. Trump could respond by ratcheting levies on autos and auto parts higher, analysts say.

“The market will care about the European Union but not enough to change the president’s mind. It isn’t like China. And if we can get a delay on China, which is what Bessent is telegraphing, then the market generally ignores the tariff headlines,” Treyz says, adding that she expects a stalemate rather than an eventual ratcheting down of tariffs as was seen with China.

Higher tariffs could add to the impact of levies already in place working their way through the economy. Already, General Motors on Tuesday reported a $1.1 billion loss related to tariffs in its second quarter and warned those costs could total $5 billion for the full-year.

Bessent has suggested agreements will include investments in pharmaceuticals, autos and semiconductors—three critical areas also subject to sectoral tariffs, suggesting that could be part of negotiations to limit the reach of these tariffs.

Analysts see the possibility some countries could invest in the U.S. or purchase U.S. goods, like agriculture or natural gas, as part of negotiations to get a tariff rate quota that would exempt a swath of goods akin to what the U.K. got for some of its car exports.

That’s what is happening with Indonesia. Trump said Tuesday in a post on social media that the tariff rate for imports from Indonesia will remain at the 19% rate announced last week, but the Southeast Asia nation has now agreed to sell critical minerals and purchase Boeing planes, farm products, and energy from the U.S.

Countries that strike a deal with the U.S. could get a tariff quota that allows some pharmaceutical imports at a rate of 10% to 20% and those without a deal start at 20% to 30%, Treyz says.

The best contender for a deal by the deadline is likely Switzerland, which has been negotiating with the U.S. on sectoral tariffs on pharmaceuticals, their top export to the U.S., she says.

“It’s mandatory that they have an agreement in place in writing with the administration on what their [sectoral tariff] exposure is,” she says, adding that negotiations are related to their intellectual property, the development of drugs and the cost of medications in the U.S. The fallout is likely to land on pharmaceutical stocks like Roche Holding.

India is another country favored to come to an agreement, in part because of Trump’s close relationship with Prime Minister Narendra Modi. A spate of trade issues persist, including India’s own protectionism. Treyz says India could see 10% to 15% overall tariffs, and a higher rate on pharmaceuticals—with a focus on generics—that could increase the price of products like Tylenol and Advil.

One note of caution from JP Morgan’s global research team: Tariffs are likely edging toward 20% to 25% after factoring sectoral duties: “Markets are underpricing the risk of further escalation, particularly with the European Union, which is the largest U.S. trading partner.”

Write to Reshma Kapadia at reshma.kapadia@barrons.com