Japan’s US trade deal doesn’t seem great, Taiwan is a potential negative surprise for the markets

Japan’s US trade deal doesn’t seem great, Taiwan is a potential negative surprise for the markets

I have to say I’m quite surprised at those uh performances for the Japanese automakers that you showed on the screen before I came on. 15% for autos doesn’t seem like a great result from Japan’s perspective. Um as far as I’m concerned, you know, the the UK got their autos through at zero. The EU reportedly was talking about getting a quot to sell autos at 10%. Maybe 15’s going to be the new baseline. Obviously, Trump hasn’t signed the EU deal yet, so maybe he’s pushing for something closer to 15. Um, but it seems like a tough result for Japan to swallow across the board at 15%, frankly. Now, the focus here, you’re discussing the automakers and we’re looking at the Detroit 3. Uh, they have raised concerns about this trade deal, saying that the cut in tariffs on imports from Japan, but not on imports of Japanese vehicles built in North America. Um what do you make of this concern by the US automakers? Yeah, it’s not going to hold water with the Trump administration because as long as the uh you know the the autos are constructed in the US and they’re creating jobs in the US that’s needs part of the US agenda to you know have a more robust manufacturing se uh sector in the US onshore. whether those factories are owned by GM or Toyota, I don’t really think makes a huge difference from the administration’s perspective. So, if this motivates the Japanese to produce more of the cars they sell in the US in the US, that would meet the Trump administration’s objectives. But I think what the markets are going to have to struggle with in coming days is, you know, this is this is going to be ending up if 15%, let’s say, is the new baseline for the EU, South Korea, and others. And we’ve seen uh you know some of the Asian countries getting 19 20%. This is ending up a lot higher in general than we would have thought originally. Uh 10% baseline was sort of I think a wide consensus. Um and you know this is a this is meaningfully more disruptive than that. We’re just seeing these headlines now Brian Japanese Prime Minister Ishiba to resign. Uh this is according to the Mayani newspaper report. He’s going to be announcing his resignation by the end of August. This according to a local media report. Uh let’s check in on some of the Japanese yen as well as Japanese shares. On the back of this latest development, the JPY at 147 on the back of this uh again we have reports here that Prime Minister Ishiba to announce his resignation by the end of August. Uh we’re looking at the NIK holding gains after this report. Uh last traded up still 2.8%. Now uh there was a carve out for steel and aluminum. Uh that does not have the 15% tariff that uh Japan is going to receive. Uh, South Korea says they’re going to be looking closely at some of the details of this latest deal with Japan as it hammers out its trade deal with negotiations set for Friday in Washington DC. How important is it to come through for many of the other countries and Taiwan of course still yet to hear about its tariff number? Yeah, Taiwan’s an interesting case. So to the extent this is about strategic decoupling or making the US and its security partners uh you know robust to potential supply chain disturbances from China. Um we really don’t have many of the key details. So as far as uh steel and aluminum go uh you know EU Commission President Vander Lane has mentioned a metals trading club. uh when he described the UK deal on steel, commerce secretary Lutnik said that the US had invited the UK to trade steel within a walled garden against the bad guys. So I think this is the ultimate design the US is trying to get to where there are zero or lower tariffs on these materials within the club but that everybody has an external wall around this you know walled garden as Lutnik called it to keep excess supply of these materials from China out of the system and we just really don’t have the key details on that. So there there were comments from Ishiba earlier saying that the two sides had agreed to build uh resilient supply chains in areas important to economic security. So again we don’t have the details but there does sound like there’s some element of this strategic decoupling commitment the US has gotten from Japan. They will expect the same for from Korea. Now it’s very difficult for Taiwan to make such commitments given their geopolitical position. Um, so like is it possible for Taiwan to claim they’ve made their supply chain secure to China from the US perspective? I don’t think so. And we we don’t have the semiconductor tariffs yet, but they’re probably going to be 25%. Those could drop any day now, frankly, because we were told that that 232 investigation would be done by the end of this month. You know, most like most of Nvidia’s chips are made in Taiwan. So, uh, h, how is that going to be handled? Taiwan did not get a letter from Trump. So, you know, maybe this is one of the deals that slides through August without resolution as they try to figure out how to do, you know, how to handle this. Uh but this is another potential negative surprise out there for the market because if they if the US wants to make its supply chain for semiconductors secure, I don’t see how they get around slapping a 25% tariff on semiconductors from Taiwan. Now, Taiwan, for its part, has uh is hoping that its semiconductor deal via TSMC and $165 billion investment into Arizona will shine positively on them when they have their discussions. Uh we don’t have too much time left, so I need to move on and I need to ask you about what we can expect from US China when they meet in Stockholm. Uh this would be the third round of negotiations with the trade negotiator level. Of course, not to mention President Trump, President Xi, uh whether when they’re going to be meeting in person, face to face. But on the trade front, what can we expect to come out from Sweden? So, President Trump some weeks ago clearly made a decision that he did not want further disruption in this dimension uh either for the markets or or or the economy. So sort of the USChina uh relations and trade are sort of in a holding pattern right now. My sense from listening to the Treasury Secretary this morning is that these meetings are about the secondary sanctions on buyers of Russian oil, which I think is something that the Chinese are probably going to be pretty upset about. Again, just reading the tea leaves from what Mr. Bessent said, I think he’s probably trying to smooth things with China so that that next step doesn’t cause a a broader rupture. And this is not something President Trump’s going to have much choice about because the US Congress quite likely in the near future will pass legislation dictating that we must put 100% secondary tariff on buyers of Russian oil. Trump will sign that. He then will not be able to tackle on that. that’s not going to be negotiable. It will be law uh that if it’s deemed that China is buying Russian oil, he’ll have to penalize them. This is also potentially a big complication for a trade deal with India, which has been purchasing Russian oil. So I I think this is these meetings in Stockholm are probably about just communicating what’s happening there um and and trying to prevent that from derailing this day tant at least for now in US China trade.

Brian McCarthy, managing principal of Macrolens, discusses the US-Japan trade deal, what it means for future deals with countries like South Korea and Taiwan, and the upcoming US-China trade talks in Sweden.