Japan and South Korea under pressure: new US tariffs threaten economic growth

US President Donald Trump has sent the first notifications of new tariffs as part of his updated trade strategy, and two of Washington's key Asian partners, Japan and South Korea, are among the recipients. Both countries have already been hit by existing tariffs on car and steel exports. New restrictions may increase the downside risks in their economies, especially against the backdrop of slowing growth and weak domestic activity.

The economies of Japan and South Korea contracted in the first quarter of 2025 compared to the previous year. Japan is facing a technical recession — two consecutive quarters of negative GDP growth. South Korea is also showing signs of economic stagnation.

According to the updated tariff policy, imports from South Korea will continue to be subject to a duty of 25%. For Japan, the rate was increased by one percentage point to 25%. The new tariffs apply to key export categories of both countries: automobiles, auto parts, steel and aluminum. Automobile shipments are Japan's largest export to the United States, and South Korea is one of the world's top five steel exporters to the U.S. market.

It is estimated that exports of goods and services accounted for about 22% of Japan's GDP and 44% of South Korea's GDP in 2023. In such circumstances, the strengthening of foreign trade barriers can significantly weaken the pace of recovery.

Forecasts already reflect potential impacts. Economists forecast a 0.1 percentage point decline in Japan's GDP by the end of 2026. At the same time, domestic consumer demand remains sluggish, and uncertainty in global trade continues to put pressure on business activity.

The Bank of South Korea in May revised its economic growth forecast for 2025 from 1.5% to 0.8%, citing growing foreign trade risks and a delay in the recovery of domestic demand. The financial regulator warned that export growth, which was targeted, will slow down due to increased tariffs from the United States.

Risks are associated not only with current economic indicators, but also with geopolitical consequences. The Japanese authorities already have to officially declare their intention to seek agreements that will eliminate automobile duties without sacrificing national interests.

With the United States remaining Japan's largest export market and South Korea's second-largest, a new escalation in trade relations could translate into structural changes in the Asian export model.