The world is changing fast! Six months ago, a 15% tariff would have scared the market, but now it is seen as a positive factor

The logic of global trade competition is being reshaped. Once upon a time, imposing a 15% tariff on major trading partners was enough to trigger deep market concerns, but now, this rate, once seen as an extreme situation, has become an acceptable, even fortunate outcome in the eyes of investors and the business community.

The latest example is the trade agreement reached between the United States and Japan. According to the agreement, Japanese goods exported to the U.S. will be subject to a 15% tariff. This rate is significantly higher than the levels before Trump took office, but in the context of avoiding the 25% punitive tariffs that were set to take effect next week, the market interprets it as a major positive.

After the news broke, global financial markets quickly reacted positively. Japan's Nikkei 225 index surged 3.5% on Wednesday, with shares of automakers like Toyota and Honda soaring 14% and 11%, respectively. At the same time, the yield on Japan's 10-year government bonds also rose significantly. The market's enthusiastic response clearly indicates that, in the current environment, certainty itself constitutes a premium, even if that certainty means higher trade costs.

This shift not only affects U.S.-Japan bilateral relations but may also set a new benchmark for future global trade negotiations. Analysts point out that a 15% tariff level may be the best outcome that other major U.S. trading partners, such as the European Union, can expect, marking the formal entry of global trade into a new normal of high tariffs.

15% Becomes the New Tariff Floor

Under the push of the Trump administration, the market's "psychological threshold" for tariffs has fundamentally changed. Financial markets and manufacturers seem to have accepted that double-digit tariffs are the new reality, and compared to worse possibilities, this is not unbearable.

"The 15% tariff rate in the U.S.-Japan agreement appears to roughly constitute a new global tariff floor," wrote Tobin Marcus, head of U.S. policy and politics at Wolfe Research, in a report. He believes that for the European Union, this may be the best outcome it can negotiate, while the final tariff levels for other Asian countries may fall in the range of 19% to 20%, as indicated by recent agreements.

A notable example is the agreement reached between the United States and Indonesia. According to the text of the agreement released on Tuesday, Indonesian goods exported to the U.S. will be subject to a 19% tariff, which, although higher than the beginning of the year, is far lower than the 32% that was threatened earlier this year. White House officials have also acknowledged this dynamic, suggesting that some countries may ultimately receive tariff rates lower than what the government could have originally imposed.

Why the Market "Breathes a Sigh of Relief"

Investors view a costly tariff agreement as a positive because it eliminates a greater uncertainty. As Chris Krueger, a policy analyst at TD Cowen, stated, the "Overton Window" of policy—meaning the range of policies considered acceptable by mainstream public at a given time—has shifted. "Imposing a 15% tariff on the U.S.'s fifth-largest trading partner? Better than 25%." For Japan, this agreement eliminates a significant downside risk to its economy, namely the potential sharp decline in U.S. demand due to extremely high tariffs. According to JP Morgan economist Ayako Fujita, the stability of the trade environment will allow the Bank of Japan to consider interest rate hikes more comfortably this fall.

This sentiment is directly reflected in asset prices. The surge in Japanese government bond yields indicates that investors expect Japanese economic activity to remain on track, thereby creating conditions for the central bank to tighten monetary policy.

Is Japan a Potential Long-Term Winner?

From a longer-term perspective, this agreement may even be beneficial for Japan. Investors believe that a stable trade outlook will support Japan's automotive and other export industries.

Ayako Fujita noted in her report: "The agreement increases the likelihood that Japan's effective tariff rates will be lower than those of its competitor countries. If this is the case, it could even be a long-term positive for Japanese manufacturing." The significant rise in automotive stocks like Toyota and Honda is a direct bet by the market on this logic.

Uncertainty Remains for U.S. Gains

However, it remains unclear what substantial benefits the U.S. can gain from this deal.

Although countries like Japan, Indonesia, and the Philippines have stated they will open their markets to U.S. exporters, it is still unknown whether consumers in these countries have sufficient demand for domestically produced U.S. goods.

Additionally, President Trump claimed that Japan would invest up to $550 billion in the U.S., with the U.S. side receiving 90% of the profits. However, the specifics of how this massive investment will materialize are still lacking. For investors, the actual value of these commitments remains to be seen.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the individual user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk