QUESTION: With the U.S. imposing 25% tariffs on Japan and South Korea effective August 1, how should advisors assess the impact on international equity exposure?
RESPONSE: The imposition of 25% tariffs on goods imported from Japan and South Korea by the U.S., effective August 1, could have several implications for international equity exposure. Here are some considerations for advisors:
- Market Volatility: The announcement of these tariffs has already led to a decline in U.S. stock markets, as indicated by the accelerated selling following the release of letters informing Japan and South Korea about the tariffs[1]. Advisors should prepare for potential increased volatility in both U.S. and Asian markets as the tariffs take effect.
- Trade Imbalances: The tariffs are a response to significant trade imbalances, with the U.S. running a $69.4 billion trade imbalance with Japan and a $66 billion imbalance with South Korea in 2024[2]. This suggests that the tariffs could impact companies heavily reliant on exports to the U.S., potentially affecting their stock performance.
- Sector-Specific Impacts: The tariffs will be on top of any existing sector-specific tariffs, such as those on steel[3]. Advisors should assess which sectors are most exposed to these tariffs and consider the potential impact on companies within those sectors.
- Retaliatory Measures: There is a possibility of retaliatory tariffs from Japan and South Korea, which could further impact international trade dynamics and equity markets[4]. Advisors should monitor developments closely and consider the potential for escalating trade tensions.
- Currency Fluctuations: Tariffs can lead to currency fluctuations as countries adjust to new trade dynamics. Advisors should consider the impact of potential currency movements on international investments.
Overall, advisors should closely monitor the situation and consider diversifying international equity exposure to mitigate risks associated with these tariffs. They should also stay informed about any further developments or negotiations that could alter the current trade landscape.
References
[1] Wall Street moves lower as Trump’s tariff deadline nears The selling accelerated after the Trump administration released letters informing Japan and South Korea that their goods will be taxed at 25% starting on Aug. 1, citing persistent trade imbalances with the two crucial U.S. allies in Asia.
[2] Trump to put 25% tariffs on Japan and South Korea, new import taxes on five other nations. The United States ran a $69.4 billion trade imbalance in goods with Japan in 2024 and a $66 billion imbalance with South Korea, according to the Census Bureau.
[3] Trump Again Extending ‘Liberation Day’ Tariff Pause—Setting Aug. 1 Deadline For Deals [Forbes] The letters say the 25% tariffs will be on top of any sector-specific tariffs the U.S. levies—such as those on steel—and that they could change in the future, saying the Trump administration will raise its tariffs if Japan or South Korea impose retaliatory tariffs on U.S. goods, and the administration will conversely “perhaps consider an adjustment to this letter” if the countries instead eliminate their tariffs and trade barriers on U.S. goods. https://www.forbes.com/sites/alisondurkee/2025/07/07/trump-again-extending-liberation-day-tariff-pause-setting-aug-1-deadline-for-deals/
[4] Trump Again Extending ‘Liberation Day’ Tariff Pause—Setting Aug. 1 Deadline For Deals [Forbes] The letters say the 25% tariffs will be on top of any sector-specific tariffs the U.S. levies—such as those on steel—and that they could change in the future, saying the Trump administration will raise its tariffs if Japan or South Korea impose retaliatory tariffs on U.S. goods, and the administration will conversely “perhaps consider an adjustment to this letter” if the countries instead eliminate their tariffs and trade barriers on U.S. goods. https://www.forbes.com/sites/alisondurkee/2025/07/07/trump-again-extending-liberation-day-tariff-pause-setting-aug-1-deadline-for-deals/