The United States and Japan have finalized a trade agreement reducing import tariffs on Japanese vehicles from 27.5% to 15%, along with lowering planned duties on other goods from 25% to the same level, originally set to take effect on August 1, reports the Baltimore Chronicle citing Reuters.
The deal with Japan, the world’s fourth-largest economy, includes not only tariff reductions but also investment commitments and credit provisions directed toward the U.S. economy. It is considered one of the most significant agreements made under President Donald Trump’s administration, putting additional pressure on both China and the European Union to resolve their trade disputes before key August deadlines.
Although 15% remains a relatively high rate, it provides businesses with more predictability compared to recent uncertainty that hindered investment planning. Mohit Kumar of Jefferies noted that the average U.S. tariff rate in 2024 stood at around 2.5% and has now risen to roughly 17%. He anticipates a new baseline level of about 15% after stabilization, with some deals possibly pushing rates slightly higher. From a macroeconomic perspective, he stated, the world can still operate under such conditions.
Financial markets responded positively. According to Derek Halpenny of MUFG in London, a standard rate of 10–15% now appears to be forming for large economies, with smaller nations likely facing slightly higher levels.
Following the announcement, Volvo’s stock surged over 10%, while shares of German automakers Porsche, BMW, Mercedes-Benz, and Volkswagen climbed 4–7% due to their strong U.S. market presence.
Jim Reid of Deutsche Bank pointed out that investor fears of a sharp tariff spike on August 1 have eased. However, he warned that the threat of steep duties remains for several major economies—30% for the EU, 35% for Canada, and 50% for Brazil.
Expectations for long-term inflation in the U.S. slightly decreased following the news, potentially opening the door for the Federal Reserve to lower interest rates later this year. Still, markets do not anticipate a rate cut as early as next week—the first real opportunity is seen in October.
The European Union could be next in line. President Trump has threatened a 30% tariff starting August 1, which has already prompted discussions of potential countermeasures from Brussels. Such a level could severely damage the EU’s trade-reliant economy and effectively cripple much of transatlantic commerce. The EU had initially hoped for a 10% rate but now acknowledges a higher tariff is more likely.
China is also under growing pressure, with a deadline set for August 12. Without a renewed or extended deal, U.S. tariffs could rise to 145%, and China’s could reach 125%.
Earlier we wrote that Trump announces U.S. withdrawal from UNESCO.