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- Analysis-US-Japan trade deal averts worst for global economy</p>
<p>Balazs Koranyi and Francesco CanepaJuly 23, 2025 at 6:24 PM</p>
<p>By Balazs Koranyi and Francesco Canepa</p>
<p>FRANKFURT (Reuters) -Japan's trade agreement with the U.S. could serve as the benchmark for many other deals currently being negotiated with Washington, and the global economy could just about support the 15% level agreed overnight, economists said.</p>
<p>Tokyo's deal with the U.S. lowers tariffs on auto imports to 15% from levies totalling 27.5% previously. Duties that were due to come into effect on other Japanese goods from August 1 will also be cut to 15% from 25%.</p>
<p>The deal with the world's fourth-largest economy, which includes commitments for U.S.-bound investment and loans, is the most significant of a clutch of pacts U.S. President Donald Trump has concluded to date. It raises pressure on China and the European Union, which both face crucial August deadlines.</p>
<p>Although 15% is still a significant duty, such a level is still manageable and less damaging than the volatility created by the uncertainty, which has made it near impossible for firms to plan investments, some economists argue.</p>
<p>"Average tariffs for the U.S. were around 2.5% for 2024 (while) currently, average tariffs stand around 17%," Mohit Kumar at Jefferies said, referring to the rise in global duties since Trump's so-called "Liberation Day" announcement on April 2.</p>
<p>"Our base case remains that when the dust settles, we could see average tariffs around 15%, though recent deals suggest that this number could be slightly higher," Kumar said. "While a negative from a macro point of view, the world can live with 15% or so tariffs."</p>
<p>Financial markets heaved a sigh of relief on Wednesday.</p>
<p>Japan's Nikkei stock index jumped 3.5% on the deal but European shares were also higher, driven by automakers, on growing optimism that workable deals are possible.</p>
<p>"It looks like the benchmark for major economies is going to be 10-15% and a somewhat higher level for smaller economies," Derek Halpenny, head of research at MUFG in London, said.</p>
<p>Volvo Car stocks jumped more than 10% while Germany's Porsche, BMW, Mercedes-Benz and Volkswagen, all with significant U.S. sales, rose between 4% and 7%.</p>
<p>"This more positive trade news has really helped to ease investor fears that tariffs are about to snap back higher on August 1," Deutsche Bank's Jim Reid said.</p>
<p>"But of course, the threat of much higher tariffs still remains for several large economies, including the 30% on the EU, 35% on Canada and 50% on Brazil," Reid added. "We also know from experience that we might not know the outcome until hours before the deadline."</p>
<p>Longer-term U.S. inflation expectations eased a touch on the deal, suggesting that trade agreements could alleviate some price fears and give the U.S. Federal Reserve room to lower interest rates later this year.</p>
<p>However, markets continue to see a close to zero chance of a Fed rate cut next week and the first move is not fully priced in until October.</p>
<p>The EU, which negotiates trade deals on behalf of its 27 members, could be next. Trump has said he will impose 30% tariffs by August 1, triggering threats of retaliatory measures from the EU.</p>
<p>Such a level would be economically debilitating for a bloc that relies heavily on trade and would wipe out whole chunks of transatlantic commerce. The EU originally hoped it could secure a tariff of around 10% but has since accepted the outcome is likely to be several points higher at least.</p>
<p>Pressures also remain high on China, which is facing an August 12 deadline before tariffs could snap back to 145% on the U.S. side and 125% on the Chinese side without a deal or a negotiated extension.</p>
<p>"The US-Japan deal will put more pressure on other major Asia exporters to secure better deals," ING said. "We've already seen trade deals with the Philippines and Indonesia. Before 1 August, there should be more deals struck with Asian exporters."</p>
<p>(Reporting by Balazs Koranyi; editing by Mark John and Sharon Singleton)</p>
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