Japan’s Prime Minister communicated with President Trump regarding the US tariff measures. They agreed to speed up talks between ministers to reach a mutually advantageous agreement, while also sharing perspectives on Israel’s attacks on Iran.

Trump aims to raise tariffs on automobiles and other imports from Japan and desires Japan to open its economy to more US goods. The challenge lies in differing economic behaviours, as Japan is a saver nation and the US has a spending culture.

Current Tariff Measures

Currently, the US imposes a 25% ad valorem tariff on fully assembled foreign automobiles. This has been in place since April 3, 2025, under a Section 232 national security order.

Additionally, a 25% tariff on auto parts, including engines and transmissions, was enacted on May 3, 2025. However, USMCA-compliant components are temporarily exempt from these tariffs.

President Trump has hinted at increasing the 25% auto tariffs. This is intended to further promote US-based manufacturing and investment.

Even though we’ve seen this all play out before, the latest exchanges between the two leaders underscore renewed friction around trade policy—and, truthfully, the timing could not be more sensitive. For those of us following market-linked products reliant on macro-political developments, the inclusion of security-driven justifications for trade decisions only sharpens the potential for volatility. When these types of tariffs are introduced under Section 232, they send an unmistakable signal: domestic priorities now outweigh broader multilateral economic coordination.

Implications of Tariff Changes

The ramped-up duties on fully built vehicles and now their essential subcomponents have real implications for cross-border supply strategies. Foreign manufacturers with production facilities in the US may still retain their margins, but this hinges heavily on whether these facilities meet the evolving interpretation of domestic content thresholds. It’s also evident that the exemption tied to the North American trade agreement was structured as a temporary pressure valve. That clock is ticking.

In simple terms, we’re looking at a policy setup that discourages import reliance and uses cost as a lever to reallocate industrial activity inward. This fundamentally shifts the argument from competitiveness to proximity. With tariffs now touching not just product shells but also their mechanical cores—engines, gearboxes—it’s the guts of an industry under test. That test isn’t just technical. It’s political, it’s strategic, and it’s deeply anchored in divergent national models of consumption and production.

From a behavioural standpoint, the divide remains clear: one economy leans toward surplus and thrift, the other toward deficit and demand. These differences are not temporary quirks; they are structural. And when trade negotiations spring from such differing baselines, resolution tends to involve more than just spreadsheets and tax codes—it involves changes in access, patterns, and power.

A smart reaction now presumes heightened awareness of trade-dependent exposures. Sector-specific instruments, especially any structured around vehicle flows, may display sharper intraday re-pricings—particularly if Trump’s hints about expanded tariffs move from offhand remarks to actionable decrees. The language has shifted from “consideration” to outright expectation, and that’s where the adjustment lies.

We should anticipate policy tracking to overtake data analysis in the modelling weeks ahead. The prospective weight of additional tariffs cannot be projected away with volatility assumptions from last quarter. Anyone focused on managing position correlation, especially across yen-linked equities, has seen how trade clarity—or the lack thereof—feeds into hedging costs and option premiums.

A development underpinning all of this is policy synchronisation risk. While both sides have expressed a willingness to “speed up” agreements, what matters is not pace but terms. When you’re dealing with two economies that move at entirely different rhythms, speed by itself might just increase friction. We’ll likely hear more from ministerial talks very shortly, but market positioning should already begin to price in the cost of delay. Or, more precisely, the cost of expectations that don’t materialise.

Finally, security connotations stitched into economic actions make the calculus harder to trust on purely commercial terms. Trade policy with military undertones becomes less predictable and far more subject to diplomatic variables. And those variables, as we’ve seen in the past, don’t follow business cycles. They follow headlines.

Create your live VT Markets account and start trading now.