by Aidan Panotes-Bengzon
President Trump’s seemingly endless aggressive tariff campaign wages on with the sending of letters via Truth Social to the leaders of Japan and South Korea,notifying the nations of a newly-imposed 25% tariff on all their imported goods effective August 1, 2025. “If for any reason you decide to raise your tariffs, then, whatever the number you choose to raise them by, will be added onto the 25% that we charge,” Trump wrote. This move is confusing given its antagonistic messaging, as it further strains relations between Japan and South Korea – two of the U.S.’s closest allies in the Asia-Pacific region. But Trump’s blunt July 7 tariff edict didn’t just snub allies in Tokyo and Seoul – it plunged their vulnerable economies into deeper uncertainty.
Japan
Just this past April, Japan’s economy was hit hard by Trump’s 25% tariff on all steel and aluminum trade partners, and harder by his other direct 24% tariff on all Japanese imports. Prime Minister Ishiba criticized Trump’s decision to slap tariffs on Japan, calling the move “extremely disappointing and regrettable,” especially given its seismic impact on Japan’s export-dependent relationship with the U.S. for automobiles and autoparts. In 2024, automobiles and auto parts made up roughly 32% of all Japanese goods (valued at ~$48 billion) exported to the U.S. – nearly a 20% difference from Japan’s second-leading product line.
Once Trump’s first wave of tariffs hit, Japan’s supply chains to the U.S. saw an immediate disruption. Japanese exporters reported notable supply-chain adjustments and order slowdowns rather than a sudden collapse, while higher steel and aluminium duties fed through to incremental rises in producer prices.
While the initial shift in domestic fundamentals was mild, the tariff-induced panic has directly contributed to Japan’s economic woes. On April 7, Japan’s Nikkei 225 stock market index fell by 7.8% (ballparked to be a $100 – 150 billion loss) due to panic selling and withdrawals, marking the second-largest single-day loss in Japanese history since the infamous “Black Monday” market crash of 1987 that erased $421 billion of Japanese equity value.
Japanese analysts have posited a significant downward pressure on the economy’s long-term GDP growth as a result of the shock from Trump’s tariffs. Per the Japanese Cabinet Office’s preliminary GDP estimate for Q1 2025, real GDP was down –0.2% quarter-on-quarter and annualized to about –0.7% – about a $35 billion loss in economic output.
Over the past three months however, Japan has thankfully seen stronger private spending in restaurants, entertainment, and gaming, leading to a revised preliminary Q1 GDP estimate seeing a 0.0% quarter-on-quarter – signaling flat growth.
Despite Japan’s seeming economic cushion, it serves a fragile buffer at best. Yoshike Shinke, a senior executive economist at Dai-Ichi Life Research Institute, warns that Japan’s economy is still “very vulnerable to shocks, such as one from Trump’s [August] tariffs.”
Japanese consumers are still hesitant to spend, fearing Trump will again punish Japan’s economy by writing out another tariff from his seemingly never-ending arsenal. According to a Reuters poll,“[Japan’s] service-sector confidence has weakened for four straight months, signalling that consumers and businesses alike are becoming more cautious amid tariff uncertainty.”
For Japan, it is clear that its government, citizens, and institutions have all been traumatized by Trump’s tariff endeavors. And given the current state of their economy, they have every reason to be. It is difficult to say how long Japan will hold onto their flat growth – sooner or later restaurant tables will be empty, gaming centers will grow quiet, and the shock from Trump’s looming tariffs certainly won’t be filling up these seats.
South Korea
Asia’s fourth largest economy also fell victim to Trump’s April tariff campaign, having been subject to the U.S.’s steel and aluminum tariff, plus an additional 25% reciprocal tariff on all South Korean imports.
For nearly eleven years, the U.S. has been South Korea’s top importer of automobiles, with the product constituting about 27% (~$34.7 billion) of all U.S. imports in 2024. South Korea is U.S. trade-dependent, like Japan, and has mimicked their economic fallout.
On April 3, 2025, Acting President Han Duck-soo tried to ease public concerns, declaring that “as the global trade war has become a reality, the government must pour all its capabilities to overcome the trade crisis”. However, the power of his words faltered in the face of Trump’s tariffs. On April 7, the Korea Composite Stock Price Index (KOSPI) dropped 4.2% intraday as investors fled amid tariff-panic, losing about $30 billion in market value during a single session.
Following this shock, on April 23, the Bank of Korea released their Q1 2025 GDP report, noting that South Korea’s real GDP was down -0.2% quarter-on-quarter and annualized to about -0.8% – a pace which estimates an end-of-the-year loss of about $15 billion in output.
While one might scoff at South Korea’s end-of-the-year output loss in comparison to Japan’s initial $35 billion estimate, South Korea’s economy is more than $3 trillion smaller, meaning the $15 billion dollar hit to their economy amounts to roughly a 0.1% larger GDP loss than Japan’s when viewed in proportion to their economies.
But unfortunately, while Japan’s economy saw revisions – done in part by the foodie and gamer communities, South Korea lacks any comparable growth trends, with the nation being just one more consecutive quarter of GDP decline away from an economic recession.
Plagued by weak domestic demand, investment pullbacks, tariff fear, and on the brink of recession with not even a flat growth cushion, the economic stakes for South Korea are much higher if Trump doesn’t reconsider his aggressive tariff provisions.
Bank of Korea Governor Rhee Chang-yong says, “Uncertainties related to U.S. tariff policies [on South Korea] complicate future rate decisions.”
Lee Yong-ho, CEO of parts-supplier AIT, warns, “If [Trump’s tariffs] continue, we’re looking at a hopeless situation.”
While Japan’s economy might have a slightly better position than South Korea’s, as August looms, both nations are united in their vulnerability to Washington’s tariff hammer, with both export-dependent economies now scrambling to absorb sudden blows to growth.
As Japan and South Korea ride the wave of Trump’s tariffs, their economies must stay resilient amid uncertainties. In an ideal world, both nations stray off U.S. trade-dependency to prevent overreliance on the U.S.’s import demand and mitigate trade-induced economic uncertainties. They could look to markets in China, ASEAN, or the European Union – all regions well established within South Korean and Japanese trade – to supplement their U.S. market losses. Or even better, they could boost domestic demand and simultaneously move up the value chain in sectors like digital services or biotech, creating new sources of growth that don’t hinge on any one foreign market.
Considering the difficulty of achieving these objectives in the short-term, Japan and South Korea may have to fall back on damage control as Trump’s tariffs hit – such as cutting costs, conserving cash, and clinging to what little U.S. business they can salvage until, hopefully, a more stable trade policy reemerges.
