Japan, Korea, and others face tariff shock, EU avoids first wave

Washington redraws the trade map

A fresh wave of tariff notices from the United States has shaken global trade relationships, landing hardest on some of its own key partners. The Trump administration formally issued letters to 14 countries—ranging from Japan and South Korea to Cambodia and Serbia—announcing unilateral tariff hikes that will take effect on August 1 unless bilateral deals are reached.

Tariff rates vary by country: 25% for Japan, South Korea, Malaysia, Kazakhstan, and Tunisia; 30% for South Africa and Bosnia; 32% for Indonesia; 35% for Bangladesh and Serbia; 36% for Cambodia and Thailand; and a steep 40% for Laos and Myanmar. Each letter came with a stern warning: rerouting goods through third countries to circumvent tariffs will trigger penalties.

The breadth and severity of the list caught many off guard, particularly given the inclusion of close US allies. Both Japan and South Korea now find themselves in an unexpected diplomatic bind, facing tariffs that threaten to disrupt deeply interconnected supply chains.

Tokyo responded swiftly, confirming receipt of the US letter and signaling openness to negotiate. Japanese Prime Minister Shigeru Ishiba noted that the tariff terms were not final and hinted at possible revisions if Japan moved quickly to meet US conditions. Seoul echoed this sentiment, viewing the delayed implementation as a window for de-escalation.

Europe watches, but escapes for now

In a notable omission, the European Union was spared from the initial wave of tariff letters. EU officials confirmed no formal communication from Washington had arrived, and negotiations appear to be progressing. A recent exchange between European Commission President Ursula von der Leyen and President Trump was described as “constructive,” though sources noted internal divisions remain over the scope of any final trade deal.

The temporary reprieve lifted some pressure off European markets, but officials remain wary. With Trump’s July 9 deadline for tariff decisions looming, the bloc knows that any perceived stall in talks could quickly put it back in the crosshairs.

Japan’s bond yields rise on tariff risk

Financial markets are already reacting. Japan’s 10-year government bond yield climbed above 1.47% on Tuesday—its highest level in three weeks—following news of the 25% tariff announcement. While the rate is lower than the 35% previously floated, it is still well above the standard 10% baseline, intensifying pressure on Tokyo to strike a deal.

Economic data offered a mixed backdrop. Japan’s May current account surplus beat forecasts, signaling solid external demand. But soft wage growth figures earlier this week tempered expectations for further monetary tightening by the Bank of Japan, capping the upside in yields.

Australia stays on hold, eyes global uncertainty

Elsewhere, the Reserve Bank of Australia surprised markets by holding its cash rate steady at 3.85% in its July meeting, defying expectations for a 25 basis point cut. The decision, passed by a 6–3 majority, reflects confidence in the labor market and easing inflation pressures.

The central bank cited a more balanced outlook but emphasized a cautious tone, pledging to remain nimble amid heightened global risks—including trade tensions, weakening demand, and supply chain adjustments. Policymakers are awaiting clearer data before committing to any easing path, and signaled close monitoring of international developments that could spill over into domestic conditions.