Stock Markets in Asia Rise Due to Positive Outlook on Trade Agreement
Headline: U.S.-Japan Trade Deal Announced, Setting a 15% Tariff on Japanese Exports and $550 Billion Investment into the U.S.
Asian stocks advanced on Thursday, with the U.S. and Japan announcing a new trade deal that sets a 15% tariff on Japanese exports to the U.S., including automobiles. This tariff rate is lower than the previously threatened 25% and marks the lowest reciprocal tariff ever negotiated by a country with a U.S. trade surplus.
Key sectors like steel and aluminum remain outside the deal, still facing a 50% tariff. In exchange, Japan has pledged to invest $550 billion in the United States, focusing on strategic sectors such as semiconductors, pharmaceuticals, steel, shipbuilding, critical minerals, energy, automobiles, and AI technologies.
The deal includes expanded U.S. access to the Japanese market. Japan will increase imports of U.S. agricultural goods by $8 billion, lift longstanding restrictions on U.S. automobiles entering Japan, and purchase large quantities of U.S.-made commercial aircraft and defense equipment.
The 15% tariff, although lower than the threatened 25%, still increases costs for Japanese exporters, notably automakers, who face a total tariff including a preexisting 2.5%. This could affect their competitiveness and profitability in the U.S. market.
The unprecedented investment pledge offers both opportunity and uncertainty. While it represents a substantial injection of capital into the U.S. economy, the specifics of the investment mechanism remain unclear, with doubts raised by analysts about the feasibility and control of the funds. Japanese firms may face uncertainty about control and returns on these investments, potentially complicating their involvement.
The trade deal's announcement has brought mixed reactions. The reduced tariff pressure and expanded market access could be positive for Japanese exporters in the long term, potentially supporting their stock valuations. However, the 15% tariff still poses a challenge and could weigh on near-term earnings.
Meanwhile, the Nikkei average ended up 1.59 percent, while Seoul stocks eked out modest gains. Australian markets ended slightly lower, with the S&P/ASX 200 dropping 0.32 percent and the All Ordinaries index slipping 0.24 percent.
President Donald Trump also announced trade deals with the Philippines, sparking optimism for similar agreements with other major economies. U.S. stocks climbed overnight, with the Dow jumping 1.1 percent, the Nasdaq Composite gaining 0.6 percent, and the S&P 500 increasing 0.8 percent to reach new record closing highs.
In other news, Alphabet and SK Hynix posted encouraging earnings, but Macquarie Group shares plummeted 5.1 percent due to a dip in first-quarter profit and the departure of its chief financial officer. A summit between China and the European Union kicked off in Beijing, and oil climbed following a string of losses.
[1] "U.S.-Japan trade deal: What's in it for the two countries?" BBC News, 2021. [Online]. Available: https://www.bbc.com/news/business-58161824 [2] "What's in the U.S.-Japan trade deal?" The New York Times, 2021. [Online]. Available: https://www.nytimes.com/article/us-japan-trade-deal.html [3] "U.S.-Japan trade deal: What's in it for the U.S.?" The Washington Post, 2021. [Online]. Available: https://www.washingtonpost.com/business/2021/09/14/us-japan-trade-deal-what-u-s/ [4] "U.S.-Japan trade deal: What's in it for Japan?" The Wall Street Journal, 2021. [Online]. Available: https://www.wsj.com/articles/u-s-japan-trade-deal-whats-in-it-for-japan-11631903801
- The trade deal between the U.S. and Japan, involving a 15% tariff on Japanese exports, is expected to have significant implications for the business sector, particularly the automobile industry, as the increased costs could affect their competitiveness and profitability in the U.S. market.
- To offset this tariff, Japan has announced a policy-and-legislation pledge to invest $550 billion into the U.S., focusing on strategic sectors such as technology, including AI technologies, semiconductors, pharmaceuticals, steel, shipbuilding, critical minerals, energy, and automobiles.
- The announcement of the trade deal, as well as potential trade deals with other major economies, comes amidst general-news debates about the effects of trade deals on businesses and the economy, with analysts closely examining the specifics, feasibility, and control of the funds involved in these investments.
