Korea and Japan are arguably the U.S.’ closest Asian allies, with mutual defense and cooperation relationships spanning decades. At $228 billion and $150 billion respectively, the pair are also America’s fourth and sixth largest trading partners. So, when the entire world was blindsided by the Trump administration’s punitive tariffs levied on April 2, America’s two firmest friends in Asia felt uniquely betrayed.
Since the Liberation Day announcement, however, the U.S. government has made a dozen or more major changes to its tariff policies: increasing some, suspending others, and announcing many exemptions and adjustments for multiple countries and products. Adding to the global trade chaos have been attempts by competing federal courts to alternatively suspend the tariffs (as the U.S. Court of International Trade rules on 28 May) and uphold them (as the District Court for the District of Columbia did a day later).
Given the growing number of loopholes that America has already created in its numerous tariff negotiations, it is likely that Korea will work out favorable terms when it gets to the table and the Trump administration will make many more concessions to others from which Korea Inc. may also benefit.
Tariff Gamesmanship
As of this writing, the 90-day reprieve on the reciprocal tariffs for Korea and Japan (which currently stand at an additional 25 percent for most goods) will expire on 8 July. Both countries remain in discussions to reduce (and hopefully remove) these tariffs, especially for strategic exports like cars, semiconductors and pharmaceuticals. Both countries appear willing to make important trade concessions to achieve these goals; Korea in particular is keen to support its export sectors and demonstrates a willingness to play by the new U.S. rules.
Yet while some of America’s other large trading partners—the U.K., and even its number one rival China—have rushed to ink their trade deals, Japan and Korea seem content to take their time. This is in part because of complex regional trade relations (in Korea’s case) or domestic politics (in Japan). But the main reason these two countries are fine with running out the tariff clock is the hope that the Trump administration will continue to backpedal, or the ongoing legal wrangling will finally overturn the tariff rulings, or at least continue to delay their implementation. Added to this is the hope that Korean and Japanese investments in America’s manufacturing sector will be recognized by the administration as more valuable to the U.S. economy than the revenue tariffs will generate.
Korea: Between the U.S., and a Harder Place
Korea’s government is managing a careful balancing act in its trade relationship with the U.S. It is trying to rebalance trade levels with America, and has even started to crack down on attempts by Chinese exporters to use Korea as a transit hub to avoid U.S. export bans and tariffs. At the same time, Korea is also preparing for the worst, increasing government support of key export industries, like pharmaceuticals and semiconductors, threatened by higher tariffs from its largest trading partner.
Underpinning this this is the fact that the US market has become increasingly important for such high-growth Korean export sectors as health and beauty, says Hyein Yoon, founder and CEO of Korean social media marketing consultancy HY Marketing. “The U.S. is now Korea’s biggest cosmetics export market globally,” she adds. Yoon points to recent U.S. International Trade Commission (USITC) estimates which put American K-beauty sales at over $1.7 billion in 2024, some 40 percent higher than exports to France, Korea’s second-largest cosmetic market. Yoon feels Korean beauty brands are particularly exposed as tariffs loom, because although “heritage is important” to K-beauty brands’ reputation—and thus overseas sales—the actual domestic market is becoming less so. “Many K-beauty brands don’t even execute their marketing brands in Korea first—they need to reach customers in the U.S. and other international markets,” she explains.
Korean consumers have not begun to purposely avoid American products and brands, as have Canadians, Europeans and others in growing numbers of anti-tariff boycotts. This is partly because, as Yoon explains, Korean affinity for American brands runs deep, and many have effectively localized: “McDonald’s now sells sweet potato fries—in many ways they are considered a Korean brand!” However, she has noticed an increase in discussions on social media sites and in discussion groups on Korean ecommerce platforms “on how to find local substitutes for U.S. products like peanut butter, just in case prices start going up.” Increased tariffs on Korean exports to the U.S. raise concern that Korea might reciprocate, heightening concerns among price-sensitive shoppers.
Trade with China presents another challenge for Korea’s ability to achieve an equitable trade deal with the U.S. China is another important K-culture export market; after the U.S. and France, China is the third-largest K-beauty market, with annual sales estimated at $1.2 billion. But some of Korea’s exports to China could become collateral damage in the years-long U.S.-China trade war.
In particular, Korean technology firms are caught in the crossfire in a tech trade war in which America seeks to curb Chinese access to cutting-edge technology markets and reduce Chinese digital exports. Many Korean companies are key suppliers to Huawei and other Chinese tech giants, such as Samsung Electronics, which is becoming a world leader in HBM (or High Bandwidth Memory chips) which are used in AI and supercomputing applications and are key target of U.S. embargos to China. China accounted for roughly a third of Samsung’s fast-growing semiconductor sales last year, and indirect suppliers and distributors have allowed Samsung to continue selling high-end chips in China.
Speculation is growing that this window may be closing as Korea gets closer to a Trump trade deal, putting Samsung Electronics and other Korean technology giants that are heavily exposed in China under pressure. That said, Trump has already carved out tariff exemptions for smartphones and computers, in response to lobbying and pressure by U.S. technology leaders (not to mention concerns that U.S. consumers will be unhappy with sharp increases in the price of their digital devices). Given the growing number of loopholes that America has already created in its numerous tariff negotiations, it is likely that Korea will work out favorable terms when it gets to the table and also that the Trump administration will make many more concessions to others from which Korea Inc. may also benefit.
Japan’s Security Blanket
Like Korea, Japan’s alliance with the U.S. is based on decades of mutual trust, and a shared strategic vision of regional cooperation and trade. Trump’s attempts to rewire the global economy certainly complicates that relationship for both countries, but it is in some ways a simpler proposition for Japan. One reason is China. While Japan’s two-way trade with China, at over $291 billion, is roughly the same level as Korea-China trade, Japan does not depend on China for as many of its key strategic exports and has been more aggressive in limiting trade in semiconductors and other sensitive technologies or national security reasons. “Japan does not trust China very much now,” says a Tokyo-based business analyst, and therefore may not feel the need to maintain as delicate a balance in its dealings as does Korea.
The U.S.-Japan relationship boils down to one fundamental issue, according to the analyst: “Security. While this can mean food security and energy security, the primary issue for Japan is the willingness of the U.S. to uphold its regional defense security commitments.” Defense is the lens through which Japan views its tariff negotiations with the U.S., even though it appears the Trump administration is not currently linking the two issues, demonstrating a rare moment of geopolitical constraint.
It is likely that Japan will import more food and energy from the U.S. as concessions to trim its trade surplus (an estimated $5.4 billion in April this year). This is despite that food imports have long been a touchy issue in a country that takes pride in maintaining self-sufficiency in rice and other agricultural products. It may not have a choice, however, as growing inefficiencies in food production, exacerbated by Japan’s aging population and shrinking workforce, make Japan ever more dependent on imports.
Poor crop yields and panic buying have significantly reduced Japan’s rice stocks (an estimated 400,000 tons lower this year than last), causing the country to dip into its strategic rice reserves and forcing the resignation of the Minister of Agriculture. The cost of rice has nearly doubled within the last year, adding to Japan’s rampant inflation; at 111.5, the country’s Consumer Price Index hit an all-time high in April, further dragging down consumer confidence.
Throwing Cars Under the Bus
“Economically there is some urgency for Japan to make a deal with the Trump administration, but that’s probably not as important now as the politics,” says Paul Cavey, managing director at East Asia Econ. “No politician wants to be seen giving in to U.S. pressure, at least before the Upper House election,” referring to a vote scheduled for July 13 this year, when Japan will choose half of the members in its House of Councilors, the less powerful (but still influential) of the country’s two parliamentary bodies.
A contentious election has emboldened Japanese politicians to adopt tough rhetoric on the prospects of a trade deal with America, particularly around the country’s all-important auto industry. The U.S. accounts for roughly 30 percent of Japan’s global car sales, and lawmakers have been very vocal in their insistence that the Trump administration must take auto exports completely off the tariff table as a condition of any deal.
At the same time, this stance may be vote-garnering political bluster, rather than a deeply entrenched negotiating position. “Ultimately, Japan would readily throw its auto industry under the bus in a trade deal if their essential security needs were met,” observes the Tokyo analyst, adding that this might not even be much of a concession. “Japan’s carmakers are fairly insulated from tariffs,” because most of the 5.1 million Japanese cars sold in the U.S. last year were also made there.
Japanese manufacturers produced over 3.28 million cars in U.S. plants last year, and many have been trying to increase their capacity, in part because of the perceived weight such investments will carry in trade talks. This includes Honda, which recently announced intentions to transfer production of their new Civic Hybrid 5-door model from a Japanese plant to its U.S. facilities by July this year. “Unlike many of America’s other trading partners, Japan has always been and continues to be willing to make significant manufacturing investments in the U.S.,” says the analyst.
Time Is on Their Side
Korean and Japanese brands stand to lose export revenue and U.S. market share should they be exposed to the full whack of Trump’s tariffs come July 8th. Moreover, Korea continues to risk getting caught in the crossfire of America’s ongoing tech trade war with China. Yet both countries are in fairly strong negotiating positions, even though, as Asia’s primary security guarantor, the U.S. does hold some serious cards. The pair are rare exceptions among America’s top trading partners in their willingness to increase investment in U.S. manufacturing and are both important sources of technology and innovations that further American productivity goals.
This will serve them in good stead in their respective discussions with the U.S. But the primary lever both Korea and Japan have to pull in their favor is time: time enough for more and more exemptions to be doled out for other countries and industries, and time for more U.S. legal battles to be fought in federal court. All of this will also create more time for the implications of much higher prices on cars, cosmetics and other key items to sink in for American lawmakers as consumers grow ever more cost-conscious.
