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R Preetha and Brighty Ann Sarah
4 May 2025 |
The following note was first published as a part of The World This Week #308 &309 Vol 7 Nos 17 &18, 04 May 2025
What happened?
On 1 May, the second round of US-Japan tariff negotiations ended without breakthroughs. Tensions persisted as Japan opposed the US refusal to reduce tariffs on automobiles and key auto manufacturing metals. This marks the second rejection of Japan’s request, with the US citing its unwillingness to grant “preferential treatment.” A fresh 25 per cent tariff on selected auto parts, imposed on Saturday, added pressure. Japanese PM Shigeru Ishiba called additional auto tariffs “absolutely unacceptable.”
On 1 May, South Korea concluded two days of working-level trade talks in Washington. While details remain undisclosed, the discussions aim to shape a “July package” covering tariffs, economic security, investment, and currency policy. USTR Jamieson Greer praised South Korea’s proactive stance, though Vice Minister Park Sung-taek dismissed speculation of a deal before the election.
On 30 April, President Donald Trump claimed that Samsung Electronics’ plans to build "massive" facilities in the US due to his tariff policy, citing it as a key achievement. This week, Taiwan also concluded its first round of “substantive” tariff talks and proposed a USD 10 billion addition to its USD 12.6 billion post-tariff economic aid package.
What is the background?
First, Trump’s tariffs on Japan, Taiwan and South Korea. On 2 April, Trump declared "Liberation Day" and unveiled sweeping tariffs on all US imports. A 10 per cent universal tariff on all imported goods took effect on 5 April, with additional tariffs on specific countries starting 9 April. A 25 per cent tariff was imposed on car and truck imports, along with a 24 per cent tariff on all Japanese goods, a 25 per cent duty on imports from South Korea, and a 32 per cent tariff on Taiwanese products—excluding semiconductors. However, these tariffs were temporarily suspended for 90 days for countries that chose not to implement retaliatory measures. The suspension is set to be lifted on July 8.
Second, the US trade deficit with Japan, Taiwan and South Korea. Japan, the US’s largest foreign investor and fifth-largest trade partner, reported a USD 84.8 billion trade deficit in 2024, up from USD 68.0 billion in 2022—driven mainly by imports of vehicles, machinery, and appliances. US exports to Japan were USD 80.3 billion in 2022, while imports hit USD 148.3 billion. South Korea–US trade reached USD 197.1 billion in 2024, with a USD 66.0 billion US trade deficit. Auto and semiconductor imports drove this gap. Taiwan, now the US’s seventh-largest trade partner, saw a record USD 73.9 billion trade deficit with the US in 2024, with semiconductors exempt from tariffs, reflecting their strategic value
Third, the significance of the US trade for the three countries. The tariffs strain US alliances with Japan and South Korea, key partners in countering China and North Korea. Taiwan facing Chinese military pressure risks weakened US. These countries rely on the US for security and as a key export market; Japan is the fifth-largest US trade partner, Taiwan the seventh, and South Korea a major player. Escalating trade tensions could destabilize their economic positions. Japan, grappling with inflation from rising energy and food costs, depends on US imports like natural gas and agricultural products (25 per cent of its food imports). Retaliatory tariffs risk exacerbating inflation and economic stagnation, a “self-defeating” outcome for Japanese consumers and businesses. South Korea and Taiwan, similarly export-dependent, face potential disruptions to their US market access, threatening economic stability and complicating their balancing act between US alignment and regional dynamics.
What does it mean?
First, the ongoing negotiations signal Japan, South Korea, and Taiwan’s strategic recalibration to navigate Trump’s aggressive tariff regime. Japan’s push for tariff reductions on autos and metals, paired with offers to boost US agricultural imports, reflects a pragmatic bid to protect its automotive sector while addressing US trade deficit concerns. South Korea’s proactive engagement, despite election uncertainties, underscores its intent to secure economic stability through a comprehensive “July package,” balancing tariffs with investment and currency policies. Taiwan’s substantial economic aid package aims to cushion tariff impacts and maintain US goodwill, leveraging its semiconductor dominance.
Second, the willingness to negotiate reflects economic interdependence and the 8 July tariff deadline which risks severe disruptions. Third, it highlights Trump leveraging the tariffs and the deadline to push favorable projects like Alaska LNG as part of the negotiations.
Third, the East Asian responses highlight the balancing act of these countries - safeguarding domestic industries, maintaining US alliances, and resisting decoupling from China. The negotiation outcomes will shape the US -East Asia relations moving forward, and may push Japan, Taiwan, and South Korea toward trade diversification.
About the authors
R Preetha and Brighty Ann Sarah are pursuing post graduation at the Department of International Studies, Stella Maris College, Chennai. They are Research Interns at NIAS.
