The U.S. government has threatened to impose significantly higher tariffs on Japanese imports unless a trade deal is finalised by July 9. This warning comes as the temporary tariff reduction, initiated on April 2—dubbed “Liberation Day” by President Trump—approaches its expiration.
From Punitive Measures to a Temporary Truce
On April 2, the U.S. enacted a sweeping 24 per cent tariff on Japanese goods, later softened to 10 per cent for a 90‑day window to allow for bilateral negotiations. The move triggered market turbulence and sparked a sell‑off of U.S. bonds, prompting President Trump to suspend tariffs pending deals—a moratorium now set to expire in just over a week .
Trump claimed at the time he would secure 90 trade agreements during this hiatus. To date, only the UK and China have reached trade understandings with the U.S., falling dramatically short of expectations.
Japan Holds Its Ground
Japanese trade negotiators are reportedly ready to accept that they will not escape automotive tariffs—but they are demanding binding guarantees that any deal will be final. According to an anonymous official, Japan wants a “covenant” that ensures no future tariff hikes—a reflection of distrust in Washington’s aggressive trade tactics.
President Trump, meanwhile, accused Japan of being “spoiled” and criticised Tokyo for allegedly barring American rice and maintaining a surplus in automobile exports to the U.S. He hinted at the possibility of slapping tariffs of 30–35 per cent on Japan if no agreement is reached.
Growing Global Uncertainty
The stand-off has rattled global markets and central banks. Federal Reserve Chair Jerome Powell recently said the uncertainty over tariffs has delayed U.S. interest rate cuts in 2025. Bank of England Governor Andrew Bailey has also warned that U.S. trade instability is feeding into British economic unpredictability.
Businesses are already bracing for impact: supply chains, particularly in the automotive and building-material sectors, are vulnerable to snap‑back tariffs. Ports in Los Angeles and Long Beach have experienced shipping surges as importers rush to beat the deadline.
Narrowing the Negotiation Strategy
As July 9 approaches, the U.S. is shifting from broad trade pacts to narrower, phased agreements. Treasury Secretary Scott Bessent has admitted the 90‑deals target is unrealistic and now anticipates just a handful of deals before the deadline, with more possible by Labor Day.
With India negotiations progressing—though still stalled over tariffs on auto parts, steel, and farm goods—Tokyo may be left behind in Washington’s priorities.
What Happens After July 9?
President Trump has been clear: no extension of the tariff pause and no further leeway. Any country without a deal faces the re‑imposition of the previous 10 percent baseline or even steeper reciprocal tariffs up to 30–50 per cent .
Tokyo has insisted on certainty. It wants clear terms so domestic firms can plan ahead, and so far remains firm on securing an iron‑clad relationship rather than open‑ended negotiations .
A High-Stakes Test of Credibility
It is now a question of timing and credibility. President Trump’s negotiation strategy—characterised by sharp deadlines, aggressive threats, and last-minute pauses—may provide short-term leverage. Yet history suggests such tactics tend to undermine trust and inflate volatility.
Markets hate uncertainty, and the current episode paints a familiar cycle: threaten, pause, hype, and retreat. Trump’s strategy might eventually produce deals—if only because trading partners can’t wait forever. But the repeated pattern of brinkmanship and backtracking risks eroding U.S. reliability as a negotiating partner.
Japan’s push for a binding pact signals that global partners seek durable commitments, not endless brinkmanship. As July 9 nears, the U.S. stands at a crossroads: deliver binding deals or return to punitive tariffs—with significant economic consequences.
In our view, the days ahead will reveal whether Washington can pivot from drama to diplomacy— or revert to confrontation that unsettles markets, strains alliances, and hampers global growth.
