What the US–Japan deal signals for future global trade talks

Yahoo

2 days ago

Yahoo Finance Reporters Josh Schafer, Allie Canal, and Ines Ferré join Morning Brief with Julie Hyman to discuss how the US–Japan trade deal is hitting the auto, defense, and consumer goods sectors and what it signals for future deals.
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We had this Japanese tariff deal being and now. So 15% is the baseline which spares an uptick in tariffs that was expected for August 1st that deadline right for the tariffs to change here. And so really implications here for the countries auto industry in particular, and maybe raising hopes about other deals. Josh, you and I have been talking recently about that the markets not moving on trade headlines one day one way or another. Does today disprove that? What do you think?
I don't know if it fully disproves it actually. I I think you're seeing futures move higher sure, but when you look at sort of what's moving specifically, I think you could really sort of pin that down to specifically what this trade deal was and as we've been making that argument that maybe trade deals are moving the broad broader market. We have been pointing out, it has been moving sort of sector specific items, right? And so really, I don't know if futures necessarily took off off this news last night, right? If you looked at a chart of just S&P 500 futures, but where you are seeing the largest moves are where you would expect to see moves when the US and Japan make a trade deal, right? So Nikkei futures are up about 4%. A stock like Toyota is up over 13% at least. It was the last time I looked in pre-market trading. So you're seeing the areas of the market that would be most impacted by this deal, definitely move higher, but I don't know if necessarily the broader market is really rallying off this news and I mean, we're up about 35 basis points on S&P 500 futures. So yes, we're higher but I mean, we're kind of creeping higher here in the same fashion we have been really over the last couple of days.
Right, and clearly the implications bigger to your point for the Japanese market and some individual Japanese companies than here in the US. Inez, um there's also this investment that President Trump talked about, right? $550 billion. Um, it sounds like it's going to be sort of over time. President Trump says he's going to have some discretion over where that where that money is spent as well. So what should we be looking for there?
Yeah, and what we should be looking for is some of the areas that have been doing well to continue to do well when it comes to these investments. You mentioned 550 million, it's expected that some of that will go into semiconductors, into energy infrastructure, pipeline infrastructure, also aerospace and defense. So these are sectors that have been doing well. The industrial sector has been doing well. So this is part of a trade deal that's very bullish for the market. And look, as far as the trade deal is concerned, it's bullish overall because Japan is a key ally of the US in Asia. So this is this gives optimism, hope for other perhaps uh countries and and blocks of countries, i.e. the EU, to also be able to come to a favorable deal because the market is and is basically saying this is better than feared. And that's what you're looking at when you look at Toyota stock. You're also seeing that with some of the German automakers that are also up as well because of that optimism that if this could be done with a key ally of the US, then perhaps other deals could follow as well.
Yeah, I thought Peter Boockvar, um, who longtime commentator out in his morning note said a couple of interesting things. First of all, he points out um even though there is maybe a hope that US automakers would be able to sell more cars into the Japanese Japanese market. Guess what? US autos aren't tariffed in Japan. There there hasn't been a tariff on them. He points out at least since 1977. So he says maybe there's some other reasons that that US cars have not been selling in Japan. He also, you know, repeats the sort of line that we've heard a lot you guys, that this is ultimately a tariff on US consumers. So even if it's less than the worst-case scenario, it is still going to be um higher than it was and at least some of that cost is going to get passed on to us. And then there's the dollar equation, Allie, um which has an effect on the on how much the tariff what the tariff effect is going to be.
Yeah, and we've seen the dollar weaken considerably against other currencies. The US dollar index is down about 10% since the start of the year. And that's going to be a bigger tariff burden or lead to a bigger tariff burden for companies and consumers. Now we have seen companies so far absorb a lot of that tariff impact, but Goldman Sachs economists are now saying that the US effective tariff rate is going to be around 15%. This is significantly higher than what we saw at the start of the year. And even on the consumer price side, we have seen tariffs start to trickle through a little bit when it comes to certain products like apparel, furniture, footwear. But as this US effective tariff rate rises, as we solidify a lot of these trade deals, and then you factor in the weakening dollar, it's going to be harder and harder for companies to fully absorb these costs without having it hit their bottom line. So that is really where the rubber meets the road here when it comes to how prices could continue to tick higher and at what point do these companies have to pass on some of those higher costs to the consumer?