This Friday, an extra deadline that President Trump granted
countries to negotiate new trade agreements with the U.S. expires, and, at
last, there is some progress. Over the past week, the U.S. has reportedly
reached two major agreements: one with Japan and a preliminary one with the
European Union.
Starting with Japan, the countries agreed that the U.S.
would impose tariffs of 15% on Japanese imports, instead of the 25% it had
previously threatened. In addition, Japanese Prime Minister Shigeru Ishiba
announced that, starting in April, tariffs on automobiles and auto parts will
be reduced from 27.5% to 15%.
To this end, according to Trump, the “Land of the Rising
Sun” has agreed to invest around $550 billion in the United States, with 90% of
the profits expected to remain in the US economy. The only thing is that it is
unclear where this money will actually come from, especially given Japan’s huge
national debt problem.
In general, the final terms of the trade deal have not yet
been officially confirmed. The problem is that Japan is going through a
domestic political crisis, which further complicates matters. This is probably
why, although Japan’s Nikkei 225 index rose and USD/JPY fell after the news broke, Japanese 10-year bond yields also
surged.
If those yields continue to rise, they could negatively
affect the S&P 500, as global capital could start flowing back into Japan
due to more attractive yields, a scenario reminiscent of the carry trade
reversal in July 2024, which caused disruptions not only in the U.S. market but
also in the European market.
The situation with the EU agreement is even more uncertain.
Although nothing has been signed yet, some EU member states are expressing their discontent and warning that the agreement could affect their national
economies, especially France and Germany, by harming their manufacturing
industries.
In concrete terms, the U.S. will reportedly set a 15%
import tariff on EU products. This rate would apply to automobiles,
pharmaceuticals, and semiconductors. In return, the EU would invest $600
billion in the U.S. economy and buy $750 billion worth of U.S. energy over the
next three years.
Now, the problem is that the U.S. simply does not produce
that much energy for export. In 2024, total exports of major U.S. energy
products (crude oil, LNG, coking coal) amounted to only $165 billion.
Therefore, those figures are physically impossible. Moreover, the EU’s energy
strategy is based on diversification, not dependence.
Thus, while markets may be celebrating the seemingly
optimistic news about the agreements with Japan and the European Union, the
reality of their final outlook is still far from clear. As for the possible
extension of the deadline for raising tariffs on China, once again, postponing
the problem is not the same as solving it.
This article was written by FL Contributors at investinglive.com.