Policy Backgrounders

The Asian Tariff Deals—and What May Come

July 24, 2025

The flurry of recent tariff deals with Asian countries (Vietnam, Indonesia, Japan, and the Philippines) show the urgency for both the US and other nations of reaching deals before very high US tariffs are scheduled to begin August 1. They also suggest what factors are most important for the Administration and what provisions may be addressed in deals with other countries.

• Each of the deals provides either zero or very low tariffs on US products, while US tariffs are scheduled to be lower than those announced earlier. Similarly, each deal features large announced, though in some cases not definite, plans to purchase US goods.
• Transshipment of goods (particularly of goods of Chinese origin) is a strong concern of the Administration. While many questions remain on the details, strict rules of origin will figure in the final deals; goods deemed to be simply transshipped will face higher tariffs (for instance 44% for Vietnam and 40% for Indonesia).
• Japan’s 15% rate could be a model for tariff deals from other developed countries.
• Malaysia, Thailand, and South Korea hope to negotiate deals at least as favorable as those already negotiated before the deadline, as do countries outside the region.

Four Tariff Deals with Asia

With the surprise announcement on Tuesday evening of a deal with Japan and a deal with the Philippines following President Ferdinand Marcos, Jr.’s visit to the White House, the Administration has now concluded four tariff deals with Asian countries before the August 1 deadline before imposition of higher tariffs. Each shares common features:

• Either zero or very low tariffs on all US goods exported to the countries.
• In some cases (Indonesia and Japan), promises of large investments in the US beyond the purchase of US goods. The Administration has been careful to portray the US as receiving the lion’s share of the benefits from the deals – but the US may also have receded on some key issues.
• In two cases (Japan and the Philippines), at least a recognition of the broader geopolitical aspects of the relationship (Japan is on a plan to increase its defense budget and the US reaffirmed the Mutual Defense Treaty with the Philippines). Indonesia’s deal also recognizes the importance of critical minerals.
• Vietnam, with a higher absolute trade deficit with the US and closer links to some Chinese supply chains, faced a higher rate. It was important for some countries (in particular Indonesia) to receive a lower rate than Vietnam to help their own competitiveness in US markets.

It is important to remember, however, that these deals are merely frameworks – they will have to be reduced to formal agreements over time, and in some areas the further negotiations may be difficult. Still, these countries are overall pleased that the higher “Liberation Day” tariffs will not go into effect August 1 – even if they may also face the prospect of higher sectoral tariffs in industries such as steel, aluminum, semiconductors, pharmaceuticals, and others.

Two-Deal Tuesday

On his eighth round of negotiations, chief Japanese trade negotiator Akazawa Ryosei (who represents the same prefecture in the Diet of Japan as Prime Minister Ishiba Shigeru) reportedly met with the President for 70 minutes to finalize a deal that provides for overall tariffs of 15% on Japanese exports to the US, including 15% for autos (technically tariffed at 12.5% plus a previously existing 2.5% rate). Sectoral tariffs on steel and aluminum will remain at 50%.

Japan is already the largest foreign investor in the US; the deal also features promises of $550 billion investment in the US, on top of Japan’s current $860 billion investment. The President claimed without further details that the investment is being done “at my direction” and that the US will “receive 90 per cent of the profits.”

Crucially, the investment is reportedly focused on “semiconductors, pharmaceuticals, steel, shipbuilding, critical minerals, aerospace, energy, automobiles, artificial intelligence and quantum technology.” This seems important for two reasons: first, it targets areas where Japan could face new sectoral tariffs; second, it continues agreements for closer US-Japan collaboration in new technologies (AI and quantum computing) from the Biden Administration, showing the continuing strong importance of the bilateral relationship.

While Japan has promised further market access for the US in sensitive areas including rice and autos, Prime Minister Ishiba Shigeru stated that “[w]e made absolutely no sacrifice in the agricultural sector,” and Japanese broadcaster NHK suggested that the “minimum access” framework for tariff-free US rice imports will remain, although Japan will “effectively” purchase more US rice, implying that some tariffs may remain on US rice. Minister Akazawa also stated that the agreement does not include higher Japanese defense spending; Japan was apparently able to keep the tariff and defense negotiations with the US on separate tracks, a significant point for Japan.

Agreement with the Philippines

During President Ferdinand Marcos, Jr.’s visit to Washington, the US reached an agreement with the Philippines for a 19% tariff (the same as Indonesia) – two points higher than in April but one point lower than in July, while the Philippines will have zero tariffs on US goods. However, unlike the deals with Indonesia and Japan, the announcement does not specifically promise increased purchases of US goods (although the Philippines purchases large amounts of US defense equipment). President Marcos noted that “[o]ne percent might seem like a very small concession. However, when you put it in real terms, it is a significant achievement.”

The President’s announcement of the deal also noted that “we will work together Militarily.” The Philippines is a US treaty ally, and both leaders reaffirmed their commitment to the Mutual Defense Treaty and pledged to modernize the Philippine military and strengthen collective deterrence.

More Deals to Come?

As the August 1 deadline approaches, other Asian countries are interested in negotiating deals quickly to avoid higher tariffs, and the pressure to do so now is even greater as their competitors would receive a lower tariff rate if no deals are achieved. Malaysia, in particular, has a strong interest in negotiating a deal – and a very strong case for one, given that much of its trade deficit with the US results from purchases of goods connected to US companies (for instance, with Intel in the semiconductor industry). As a part of the negotiations, Malaysia has reportedly agreed to revise rules of origin on semiconductors to deter exports to third countries.

Malaysian exports of medical equipment, highlighted during the pandemic, remain important.  Thailand reportedly expressed a desire to have zero tariffs on many (but not all) US goods and may have to make further concessions to reach a deal to avoid a prospective 36% tariff. Agriculture will be important in any deal.

South Korea will be under strong pressure to reach a deal now that Japan has one. The US and South Korea are scheduled to meet on July 25. Concessions on agriculture will not be popular in Korea; in the past they have led to protests, but the country would ideally like to see a deal at favorable tariff rates, which could include purchases of US liquefied natural gas from Alaska and (separately or in tandem) higher defense spending. Autos and semiconductors will be important sectors for consideration in any deal.

Guidelines for Other Deals?

There seem to be lessons from these deals that other countries may be able to use in their negotiations:

• Purchases of US goods: Indonesia made a commitment for greater purchases of US energy and Boeing aircraft, two important sectors where purchases can reduce bilateral trade deficits.
• Investment in the US: Promises of new investment in the US (as with Indonesia and Japan) also helped negotiations, as this investment will lead to new US jobs and presumably higher US exports (or at least reductions of imports).
• Rules of origin: these will be an important part of both finalizing the current deals and future deals. Language from whichever agreement is published first would presumably be a model for future US agreements.

More broadly, on rates, the 15% rate on Japan recalls a statement from the President last week that the basic rate for the “universal tariff” would “be probably 10% or 15%, we haven’t decided yet.” So it may be more accurate to think of Japan’s new tariff rate as reflecting the “universal” tariff (supplemented by current and forthcoming sectoral tariffs) rather than a cut from the “Liberation Day” tariff rates. Reports that the US and EU are discussing a deal with a potential 15% tariff rate lend credence to this theory – it could be, in essence, a de facto rate for developed countries with which the US has trade deficits? (The UK received a somewhat better deal, and the Administration has taken a hard line in negotiations with Canada.)

If this theory is correct, it has implications for other countries: will they face a 10% universal rate even if they have a Free Trade Agreement with the US (as Singapore and South Korea do) or will the Administration seek to push the “universal” rate higher for some or all countries? This also shows the surprising degree to which the Administration sometimes tips its hand early as to its preferred eventual outcome, rewarding paying close attention to its statements, even as they sometimes shift.

Conclusion

As August 1 approaches, the pace of dealmaking will likely accelerate. But significant questions will remain once the framework deals will have to be negotiated, notably over rules of origin and specifics in sensitive sectors such as agriculture and autos. The deals also raise questions of possibly increased trade diversion – for instance, if Japan has a lower tariff rate on autos than Canada, a situation that could harm US auto workers. Countries making deals also face the prospect of higher sectoral tariffs once Section 232 investigations into industries including semiconductors, critical minerals, and pharmaceuticals are complete. This raises the question of whether exemptions would be granted either for countries that are US allies (thus vitiating national security concerns) and/or for countries that are important suppliers of goods necessary for US industries to operate smoothly (for instance, would Indonesia receive an exemption or partial exemption from the forthcoming 50% US tariffs on copper having negotiated a broad tariff deal)?

While the deals are positive for the countries that have achieved them in avoiding even higher tariffs, there has also been dismay and anger in Asia over the situation, both among traditional allies of the US such as Japan, Korea, the Philippines, and Singapore and countries that have sought closer relations with the US while balancing their relations with other regional powers, notably China, such as Indonesia and Malaysia. The latter group of countries, in particular, is concerned that the US tariff effort may undo decades of work by both the US and these countries to build closer economic and in some cases political relations. Undoing that work and the resulting impact on public opinion may force these countries into furthering other economic partnerships if the US market is seen as uncertain. Above all, the countries of Asia, in particular Southeast Asia, do not want to be forced to choose between the US and China to the exclusion of the other country.

Amidst this uncertainty, it is unsurprising that some Asian countries facing US tariffs, even at lower rates, are also seeking to expand trade elsewhere. Indonesia and the EU also negotiated a political agreement for a Comprehensive Economic Partnership Agreement – an important step towards an EU-Indonesia free trade agreement – and hope to finalize the underlying CEPA by September. During a visit to Japan by President of the European Commission Ursula von der Leyen, Japan and the EU launched a “competitiveness alliance” driven in part by concerns over both the US and China. The alliance will focus on developing closer bilateral trade ties and more reliable supply chains, “to face the realities of our times,” in von der Leyen’s words. These types of agreements will surely grow as a response to significant changes in US trade policy.