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Mounting Pressure on Key U.S. Allies

President Donald Trump has reignited trade tensions in Asia by targeting two of America's closest economic partners—Japan and South Korea—with a fresh wave of tariffs. In newly issued “tariff letters” to foreign governments, Trump reaffirmed a 25% tariff on South Korean imports and raised Japan’s rate by one percentage point to match it.

These penalties come at a vulnerable time: both Japan and South Korea reported negative GDP growth in the first quarter of 2025, signaling a contraction in their economies. Analysts warn that additional tariffs could nudge Japan into a technical recession and significantly slow South Korea’s recovery.

Heavy Reliance on Exports

Japan and South Korea are among the most export-dependent economies in the developed world. In 2023, exports—including goods and services—accounted for 22% of Japan’s GDP and a striking 44% of South Korea’s, according to the World Bank.

Automobiles and auto parts, the mainstay of both countries’ exports, are now facing 25% tariffs when entering the U.S., while steel and aluminum imports are already subject to a 50% levy. The U.S. is Japan’s single largest export destination, with $145.76 billion in exports recorded in 2024, and ranks as South Korea’s second-largest market, with shipments totaling $127.8 billion that same year.

Economic Impact Already Evident

Japan’s economy, already on shaky ground, is expected to feel the sting. Oxford Economics predicts the new tariffs could cut Japan’s GDP by 0.1 percentage point by the end of 2026. Norihiro Yamaguchi, Lead Japan Economist at the firm, said, “Given the current backdrop of weak consumption and existing trade policy risks, these tariffs can’t be ignored.” He added that Japan’s economy will “barely grow” in the second half of 2025 and early 2026, and could dip into recession.

South Korea is in a similarly precarious position. The Bank of Korea (BOK) in May slashed its 2025 growth forecast to 0.8%, down from 1.5% projected earlier this year. “Domestic demand remains sluggish, and export momentum is weakening in response to U.S. tariffs,” the BOK stated in its updated guidance.

Diplomatic Tensions and Trade Gridlock

Japan’s Prime Minister Shigeru Ishiba has been vocal about the need for fair terms, insisting that his government will not accept any agreement that fails to remove tariffs on Japanese automobiles. “We are open to a deal that protects national interests and benefits both sides,” Ishiba said during a press briefing in May.

Analysts note that Japan’s insistence on a broad, principle-based negotiation covering sectoral tariffs has stalled progress, frustrating U.S. trade negotiators. “It’s clear that Trump wants quicker results,” said Vishnu Varathan, Managing Director at Mizuho Securities. “Japan’s structured approach is clashing with the White House’s pressure tactics.”

Though Trump has not explicitly criticized South Korea, experts believe similar sticking points exist, which could complicate ongoing trade talks and prolong tariff enforcement.

A Sliver of Flexibility—But a Ticking Clock

Despite the confrontational tone, Trump signaled a potential path to compromise. He indicated that he might reconsider the tariff decisions if Japan and South Korea agree to open their “heretofore closed” markets to U.S. goods—a long-standing demand from Washington.

Still, experts warn that the deadline is tight. Frederic Neumann, Chief Asia Economist at HSBC, said, “The letters essentially serve as a three-week ultimatum. If no deal is reached, the full brunt of the tariffs will hit.” Yet, he also noted that financial markets are responding with cautious optimism. “Investors seem to believe negotiations could soften the blow.”

What Lies Ahead

With both economies already battling slow growth and weak domestic consumption, the timing of these tariffs could hardly be worse. If a resolution isn’t reached soon, Japan may officially enter a recession by early 2026, while South Korea’s fragile recovery could stall completely.

As global supply chains remain under pressure and protectionist policies intensify, Japan and South Korea now find themselves forced into a high-stakes negotiation with one of their most critical trading partners—one that could shape the trajectory of their economies for years to come.