Trump Sends Ishiba a Letter about 25 Percent Tariff

The President of the United States, Donald Trump, announced that the U.S. would extend the limit to impose “reciprocal tariffs” from July 9th to August 1st. Trump sent letters to fourteen countries to notice tariff rate for each country. Japan was informed that 25 percent would be added on its goods. As Trump indicated a possibility that the rate would be changed based on coming negotiation, Shigeru Ishiba administration is going to accelerate bilateral negotiation with the U.S. 

In an executive order issued on July 7th, Trump extended suspension of reciprocal tariff rates, “based on additional information and recommendations from various senior officials, including information on the status of discussions with trade partners.” The order also noted that the separate 90-day tariff suspension on China issued on May 12th will remain in effect.

 

At the same time, Trump noticed the leaders of fourteen countries with letters that the U.S. would impose “reciprocal tariffs” in order to reduce trade deficit of the U.S. The tariff rates varied based on relationship with countries. Those are 25 percent for Japan, South Korea, Malaysia, Kazakhstan and Tunisia; 30 percent for South Africa and Bosnia Herzegovina; 32 percent for Indonesia; 35 percent for Serbia and Bangladesh; 36 percent for Thailand and Cambodia; 40 percent for Myanmar and Laos.

 

In the letter to Ishiba, Trump described his frustration with the trade between both countries, saying that “we must move away from these longterm, and very persistent, Trade Deficits endangered by Japan’s tariff.” “There will be no tariff if Japan, or companies within your country, decide to build or manufacture product within the United States,” Trump added in the letter, expecting more investment to the U.S.

 

Ishiba expressed his regret on Trump’s announcement of new tariff rate. “Avoiding easy compromise, Japan has been managing a difficult negotiation to demand what we need to demand and protect what we need to protect,” said Ishiba in a meeting on U.S. tariffs. The policy chief of the Liberal Democratic Party, Itsunori Onodera, regarded Trump’s informing of tariff by letter as disrespectful.

 

There is a discussion in Japan that Trump’s decision was mainly about extending the deadline of negotiation to August 1st. Some economists see uneasy standpoint of Trump, having suffered from decline of stock market or foreign exchange after the announcement of reciprocal tariffs in April. Others recognize the extension as another example of TACO, or Trump Always Chickens Out.

 

However, additional tariffs may have significant damage on Japanese products. For instance, tariff rate on Japanese beef will rise to 51.4 percent adding 25 percent on current rate of 26.4 percent. An economist of Nomura Research Institute, Takahide Kiuchi, predicts that 25 percent additional tariff will reduce Japan’s GDP by 0.85 percent.

 

Ishiba is likely to have failed in concluding the bilateral tariff negotiation before the Upper House election that will be voted on July 20th. Trump’s tariff policy has already impacted on Japan’s economy and politics.

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