Japan, Philippines Forecasts Unchanged Following U.S. Trade Deals

• United States (U.S.) President Donald Trump announced on July 22 that he has struck trade deals with Japan and the Philippines. Trump said the U.S. will apply 15% tariffs on goods imported from Japan, while the latter will invest US$550Bn in the U.S. and increase market access to American products such as cars and rice.
• Trump did not mention auto tariffs, but various news reports said the agreement covers a 15% tariff on Japanese autos, inclusive of the existing 2.5% rate. These are lower than the 25% “reciprocal” tariff stated in a July 7 letter that Trump sent to Japan. For the Philippines, Trump said that the U.S. will apply 19% tariffs on imports, slightly lower than the 20% rate in the letter Trump sent in early July.
• When the new tariff rates come into effect, the U.S. effective tariff rate on Japan will fall from around 18% currently to 16%, slightly above Fitch Solutions’ previous base case of 15%. The agency estimates that this lower rate alone will have a limited impact on growth. Nonetheless, the benchmark Nikkei stock index jumped by 3% in early-Asia trade on July 23, with shares of automakers surging.
• Meanwhile, the U.S. effective tariff rate on the Philippines will increase from around 12.0% to close to 18.0%, higher than the previous base case of 13.5%. But given the relatively modest exports exposure to the U.S., Fitch estimates that the Philippines would still be able to grow by more than 5.0% in 2025 even in the worst-case scenario, where there is a complete pass-through and high levels of elasticity.

(Source: BMI, a Fitch Solutions Company)