Negotiation clock ticks as Japan and Korea push for tariff relief

The tariff clock is ticking, but the hands are moving with deliberate ambiguity.

On August 1st, the U.S. will roll out 25% reciprocal tariffs on goods from Japan and South Korea—unless, of course, a deal materializes before then. For Japan, the rate ticks up slightly from the original “Liberation Day” posting. For South Korea, it holds steady. But this isn’t about uniformity—it’s about leverage, tempo, and signalling. Not parity, but posture.

This round feels more like a shot across the bow than a volley of live rounds. As is typical of Trump’s economic playbook, the opening gambit is loud, but the follow-through often more negotiable. The tariff letters sent to Tokyo and Seoul aren’t simply instruments of policy—they’re catalysts, designed to push talks out of political gridlock and into real-time decision making.

And gridlocked they are. South Korea has been rudderless since its June leadership change, lacking the political machinery to push negotiations forward. Japan, for its part, is bracing for a pivotal upper house election. Prime Minister Ishiba is walking a narrow plank, wary of provoking powerful domestic lobbies like rice farmers, while juggling an approval rating that would make aggressive trade moves politically perilous. With both governments navigating internal storms, real progress will wait until those skies clear.

Markets, however, aren’t waiting. They’ve taken the latest tariff update not as escalation, but as calibration. The KOSPI rallied 1.8% and the NIKKEI edged higher by 0.3%, reflecting the view that the August 1 deadline is more threat than trigger. South Korea’s unchanged tariff and Japan’s smaller-than-feared hike both suggest Washington is leaving room to negotiate.

Still, this is no détente—it’s a pressure campaign. The recent U.S.-Vietnam deal casts a long shadow. Hanoi, whose trade deficit with the U.S. is nearly double that of either Tokyo or Seoul, accepted a 10–15% blended tariff to avoid worse. That sets a psychological ceiling for Japan and Korea, and creates a potent blend of FOMO and fear. In Washington’s eyes, those who don’t move may get left behind.

So now the gears turn. Both Tokyo and Seoul are crafting broad packages—not just tariffs, but non-tariff barriers, FDI sweeteners, and defense contributions. South Korea has the wind at its back: a newly elected president, a cooperative National Assembly, and political capital to spend. It’s pushing for a summit with Trump, aiming to turn a headline into a handshake. Japan, meanwhile, is forced to play small ball—slow, steady, and bureaucratic—until its political deck reshuffles.

Sectoral carve-outs remain the thorniest terrain. Autos and steel are the pressure points. Korea and Japan will likely seek exemptions or quota deals in these sectors, trading concessions elsewhere. But Washington is unlikely to bend. Car tariffs are politically radioactive, and Trump knows their symbolic power. What began as a chance for Japan to be the “first mover” in striking a deal is now mired in automotive friction.

Still, both countries have deployed their chips wisely. Hyundai and Posco have scaled up U.S. production. Seoul may also lean on its shipbuilding prowess. Tokyo is pulling from its heavyweight bench—Nippon Steel, SoftBank, and its position as the largest foreign investor in the U.S. These are not just bargaining chips—they’re proof of alignment.

At the core, this is about trade balances. Both countries are preparing to widen the aperture on U.S. imports—LNG, grains, aerospace—buying their way into tariff relief and narrowing the surplus gap. This isn’t about avoiding the stick. It’s about choreographing the optics—appeasing Washington’s desire for “reciprocity” without blowing up the domestic base.

But underneath the trade talk, the real story is strategic. These aren’t just economic negotiations; they’re auditions for roles in the next phase of Washington’s Indo-Pacific framework. Trade is one channel, defense another. The U.S. is expected to push both capitals for more military spending, higher cost-sharing for troop deployments, and potentially tighter alignment on export controls—particularly around semiconductors and dual-use technologies.

The China shadow looms large. As Vietnam learned with its transshipment penalties, tariff relief comes with strings—chief among them, countering Beijing. Conditions around tech exports will likely be embedded in any final deal. Japan and Korea, key nodes in the global tech web, will be asked to pick a lane.

Markets are watching the divergence. Japan is underperforming amid rising JGB yields and fiscal anxiety, with debt sustainability back in focus. Political risk is bleeding into asset pricing. Korea, by contrast, holds the initiative—and could be first to de-escalate if it plays its hand well.

Bottom line: in this game, tariffs are the opening bid. The real asks come buried in the fine print—military alignment, tech firewalls, and a regional strategy that positions allies not just as partners, but as co-investors in Washington’s evolving geopolitical hedge.

This isn’t about sidestepping the trade trap—it’s about choosing which rung of the ladder to land on when the floor gives way.