Japan Moves to Shield Businesses from U.S. Tariff Impact

Economic

Summary:

In response to U.S. President Donald Trump’s newly imposed tariffs on imports from Canada, Mexico, and China, Japan’s Ministry of Economy, Trade, and Industry (METI) has established a consultation unit within the Japan External Trade Organization (JETRO)...

Japan’s Immediate Response to Trump’s Tariff Policy

Following U.S. President Donald Trump’s decision to impose new tariffs on imports from Canada, Mexico, and China, Japan’s Ministry of Economy, Trade, and Industry (METI) has taken swift action to support domestic businesses that may face disruptions. On February 2, METI announced the creation of a special advisory division within the Japan External Trade Organization (JETRO) to provide Japanese firms with guidance on legal and tax matters. This initiative reflects growing concerns about the economic impact of shifting U.S. trade policies, particularly on industries that rely heavily on North American supply chains.

The advisory division will assist businesses through phone consultations and online support, offering access to trade experts and legal professionals to help them navigate the new trade environment. With 49 domestic offices and a global network spanning the U.S., Canada, Mexico, and China, JETRO is positioned to monitor trade developments and provide Japanese companies with real-time information on tariff regulations. The government has indicated that small and medium-sized enterprises (SMEs) will receive special attention, as they are particularly vulnerable to supply chain disruptions and cost increases.

METI officials have emphasized that Japan will take a measured approach in assessing the long-term effects of the U.S. tariffs. METI Minister Yoji Muto, in a statement following a Cabinet meeting on January 31, acknowledged that many Japanese companies, including major automakers such as Toyota, have established production facilities in Canada and Mexico to supply the U.S. market. He stressed the need to analyze the specific nature of Trump’s tariff measures to understand their potential economic consequences for Japan.

The Threat to Japan’s Supply Chains and Economic Stability

Japanese manufacturers have long relied on Canada, Mexico, and China as key production hubs to facilitate exports to the U.S. market. This is especially true for automakers such as Toyota, Nissan, and Honda, which have structured their operations to take advantage of regional trade agreements and cost efficiencies. Trump’s new tariffs threaten to undermine this model, making Japan-produced goods more expensive and potentially forcing manufacturers to reevaluate their supply chain strategies.

A prolonged trade dispute could lead to higher operational costs, reduced competitiveness in the U.S. market, and economic strain on SMEs that lack the financial resources to absorb new tariff burdens. Japanese businesses are now weighing their options, with some considering shifting production locations or negotiating exemptions through diplomatic channels.

METI’s intervention comes at a crucial time, as companies brace for potential disruptions. The government is expected to engage in dialogue with U.S. officials in an attempt to secure trade concessions for critical industries. At the same time, Japan is looking at alternative strategies to lessen its reliance on North American trade. Strengthening economic ties within the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and expanding trade partnerships with Europe and Southeast Asia are being explored as possible countermeasures.

Japan’s Diplomatic Approach and the Road Ahead

As Japan navigates this shifting trade landscape, it faces the challenge of maintaining economic stability while preserving strong diplomatic ties with the U.S. Although Japanese exports were not directly targeted in Trump’s latest tariff measures, the indirect impact of trade restrictions on Canada, Mexico, and China could still create economic ripple effects. Tokyo’s response is likely to involve quiet diplomacy, with Japanese officials working behind the scenes to negotiate favorable trade terms and prevent further escalation in global trade tensions.

The upcoming G7 and G20 summits may provide a platform for Japan to push for a more balanced approach to trade. The government is expected to emphasize the importance of maintaining stable supply chains and avoiding protectionist policies that could damage global economic growth. Meanwhile, METI’s proactive measures signal Japan’s commitment to protecting its businesses from the fallout of Trump’s aggressive trade strategy.

The coming months will be critical in determining how Japan adapts to the evolving trade environment. With new tariffs now in place, Japanese firms must remain agile, adjusting their strategies to mitigate financial risks while ensuring continued access to the U.S. market. Whether through diplomatic negotiations, trade diversification, or supply chain adjustments, Japan will need to take decisive steps to safeguard its economic interests in an increasingly uncertain global trade landscape.

Source: The Japan News

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Glendon

Economic

Forex

KUALA LUMPUR (Jan 3): Economists believe that Malaysia’s exports could benefit from a trade diversion as global firms shift operations in response to President Donald Trump’s announcement of tariffs on major US trading partners, including China.

However, they caution that a potential slowdown in China’s economy due to further tariff hikes could pose risks.

BIMB Securities analyst Maliana Shaharuddin said multinational corporations may reroute trade flows to mitigate the impact of the tariffs, potentially using Malaysia as a re-export hub or a more cost-effective alternative.

However, she highlighted concerns over the slowdown in demand for electrical and electronics (E&E) products in China, which could be exacerbated by the US tariffs. Higher costs may lead to reduced orders from suppliers, including Malaysia.

“US tariffs on China pose indirect risks to Malaysia's exports that could weigh on the E&E sector. The slowdown in E&E demand could also lead to a reduction in Malaysia’s exports to the country, given the cyclical nature of Malaysia’s E&E exports,” she told The Edge when contacted.

Malaysia plays a critical role in the global E&E supply chain as the world’s sixth-largest exporter of electronics and semiconductors. For context, the country accounts for 7% of semiconductor trade flows and 13% of global back-end operations, including chip testing and packaging.

In 2024, China was Malaysia's third-largest export market, contributing 12.4% to the country's total exports, which were valued at RM1.51 trillion. It was behind Singapore (15.3%) and the US (13.2%), according to data from the Department of Statistics Malaysia, compiled by the Malaysia External Trade Development Corporation.

BIMB, however, remains cautiously optimistic about Malaysia’s trade outlook, projecting goods export growth of 3.9% and import growth of 4.5% in 2025, driven by resilience in export-oriented industries and opportunities emerging from global supply chain realignment, according to Maliana.

The research house also anticipates the revival of re-exports of 5.7% this year amid trade diversion effects, she said.

Trump’s tariff plan focuses on countries with which the US has significant trade deficits. In addition to the tariff on Chinese goods, the plan also includes a 25% duty on all imports from Mexico and Canada, which could take effect on Tuesday. However, the full extent of the tariffs remains uncertain, according to news reports.

In response, Canada and Mexico have announced retaliatory measures, while China has vowed to challenge the tariffs and implement unspecified countermeasures. Further, Trump has also hinted that the European Union could be the next target.

Sunway University Business School professor of economics Dr Yeah Kim Leng said that while the 10% tariff on Chinese goods may have a limited impact on China’s exports to the US, further tariff hikes could shave 0.1 to 0.2 percentage points off China’s projected 4.6% gross domestic product (GDP) growth in 2025.

“China has mounted a sizeable fiscal stimulus to boost domestic consumption and address housing sector woes while redirecting its export focus away from the US economy in anticipation of an escalation in trade and technology conflict with the Trump administration. Further tariff hikes could impact China’s economy.

“Unless China's growth is halved, the impact on the Malaysian economy is expected to be slight to moderate. However, a wider trade war pursued by Trump against key trade partners will inflict much damage on the global economy, particularly in terms of slower growth and higher inflation,” said Yeah, who is also deputy president of the Malaysian Economic Association.

UOB Global Economics and Market Research senior economist Julia Goh, meanwhile, said she does not rule out the possibility of the tariffs being reversed if the economic and inflationary fallout proves significant.

Goh, however, maintained export growth projection at 4.5% for 2025, noting that it is still too early to assess the full implications of the tariffs.

“Trump’s proposed tariffs appear to be more serious this time. While these tariffs may help other countries that are not tariffed (yet), we think it could be a matter of time, pending the trade investigations that Trump has initiated,” she added.

Meanwhile, OCBC senior economist Lavanya Venkateswaran commented: “The impact of tariffs on China may be more pronounced in terms of a near-term drag on growth, but the offset is that FDI (foreign direct investment) inflows from China into Asean (including Malaysia) will continue. Hence, we are maintaining our 2025 GDP growth forecast of 4.5% year-on-year.”

Source: Theedgemarkets

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Adam

Political

Hungary’s Conditional Support for EU Sanctions

In an interview with Welt am Sonntag, Bóka clarified that Hungary sees no justification for additional EU sanctions on Russia unless a consensus is reached with Trump’s administration. This marks a strategic shift in Hungary’s foreign policy, signaling that it will coordinate its stance with the U.S. rather than follow EU-led initiatives alone.

Hungary’s reluctance stems from its belief that existing sanctions have not had the intended impact on Russia. Bóka argued that prolonged economic restrictions could harm European industries more than they weaken Russia’s economy, particularly by driving up energy costs and reducing EU competitiveness. This aligns with Orbán’s longstanding opposition to punitive measures against Moscow, which he has frequently criticized as counterproductive.

Hungary’s insistence on consulting with Trump before approving sanctions highlights a deepening divide within the EU. While most member states advocate for stronger measures against Russia, Hungary remains one of the most Russia-friendly nations in the bloc and has repeatedly blocked or delayed sanctions renewal.

Energy Security and Hungary’s Strategic Leverage

Hungary’s resistance to additional sanctions is closely tied to its energy security concerns. Orbán has previously secured an EU commitment to maintain energy transit through Ukraine, ensuring stable gas and oil supplies for Hungary. He has threatened to veto future sanctions if this guarantee is not upheld.

The issue of Russian energy reliance remains central to Hungary’s economic policy. While EU foreign policy chief Josep Borrell and other European leaders have called for reducing dependence on Russian energy, Orbán’s government has prioritized stability and cost-efficiency, maintaining close ties with Russian suppliers.

However, EU diplomats, including Estonian Prime Minister Kaja Kallas, have dismissed Hungary’s energy security justifications as largely symbolic, suggesting that Budapest is using energy concerns as a political tool to justify its alignment with Russia.

Hungary’s Growing Alignment with Trump’s Foreign Policy

Hungary’s decision to condition its support for EU sanctions on Trump’s approval suggests that Orbán’s government is betting on a closer partnership with the U.S. under Trump. This move reflects Orbán’s nationalist, “America First” approach, aligning with Trump’s skepticism of multilateral EU policies.

Trump’s return to the White House could shift Europe’s geopolitical landscape, particularly regarding sanctions enforcement, NATO commitments, and trade policies. Hungary’s maneuver suggests that it sees an opportunity to position itself as a key intermediary between Trump’s U.S. and the EU, potentially leveraging this role for economic and political gains.

However, this stance could strain Hungary’s relations with EU leaders, who have sought a unified front against Russia. Should Hungary continue to resist, the EU may explore ways to bypass Hungary’s veto through alternative diplomatic measures.

Implications for EU Cohesion and Russia Policy

Hungary’s announcement underscores the EU’s internal divisions over how to handle Russia. While Poland, the Baltic states, and Germany push for tougher measures, Hungary’s conditional stance highlights growing fragmentation within the bloc.

If Hungary continues to demand U.S. involvement before agreeing to sanctions, the EU could face delays in implementing critical policies against Russia. This could weaken the bloc’s leverage over Moscow and give Russia more time to adjust to economic pressures.

Moreover, Hungary’s approach could encourage other member states to adopt more independent foreign policy strategies, undermining the EU’s collective decision-making process.

Hungary’s Sanctions Strategy Tied to U.S. Election Dynamics

Hungary’s stance on Russia sanctions is now directly linked to Trump’s administration, indicating a strategic recalibration of its foreign policy priorities. While Orbán’s government justifies its position through economic concerns and energy security, its increasing alignment with Trump’s policies could challenge EU unity and complicate future diplomatic negotiations.

As the EU moves forward with its next sanctions package, Hungary’s conditional support raises significant geopolitical questions. Whether Trump will actively engage in EU sanctions discussions—or use Hungary’s stance as a bargaining tool in broader U.S.-EU relations—remains to be seen. What is clear, however, is that Hungary is positioning itself as a critical player in shaping Europe’s response to Russia, leveraging both economic dependencies and political alliances to secure its national interests.

Source: Ukrainska Pravda

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Adam

Economic

Job Growth Slows but Market Remains Resilient

According to projections from Wells Fargo, the U.S. economy is expected to have added 150,000 jobs in January, marking a slowdown from the unexpectedly high 256,000 jobs in December 2024. If these forecasts hold, it would indicate that the labor market remains stable but cooling amid the Federal Reserve’s prolonged high-interest-rate policy.

Despite these conditions, layoffs remain historically low. Initial jobless claims stood at 207,000 last week, a figure consistent with pre-pandemic levels, suggesting that businesses are hesitant to cut staff. However, hiring has significantly slowed since 2022, creating what analysts describe as a “low-turnover labor market”—where both hiring and firing are occurring at reduced rates.

While current labor market conditions do not indicate immediate distress, Pantheon Macroeconomics economists predict that unemployment will rise in 2025, particularly if elevated interest rates and government budget cuts impact job availability. Trump’s proposed federal government downsizing, which affects roughly 2% of the U.S. workforce, could further weigh on employment figures.

Trump’s Economic Policies Could Add Uncertainty

Another potential labor market disruptor is Trump’s aggressive trade policy. His newly imposed tariffs on imports have raised concerns over potential trade wars, which could lead to job losses in industries reliant on global supply chains. However, analysts remain divided on the extent of the impact, as some sectors may benefit from increased domestic production incentives.

At the same time, Trump’s policies on immigration reform and deregulation could also shift labor market dynamics. Fed policymakers have taken a wait-and-see approach regarding these changes, choosing to assess their actual impact before adjusting monetary policy.

Fed Holds Rates Steady as Inflation Remains a Key Concern

Following its first policy meeting of 2025, the Federal Reserve decided to keep interest rates unchanged, citing a strong labor market and persistently high inflation as justification for its cautious approach.

In his post-meeting remarks, Chair Jerome Powell emphasized that the Fed would not rush to cut rates unless there was “real progress on inflation or clear signs of labor market weakness.” Powell’s comments indicate that rate cuts may not materialize until mid-2025, disappointing market participants hoping for earlier easing.

Despite repeated questions about Trump’s influence on Fed policy, Powell declined to comment on any statements made by the president. He also confirmed that Trump had not directly contacted him to request rate cuts, distancing monetary policy decisions from political influence.

When pressed about potential economic disruptions from Trump’s tariff policies, immigration reforms, and deregulation efforts, Powell maintained that the Fed is monitoring policy developments but will act based on concrete economic data.

Market Outlook: Rate Cuts Likely Delayed Until Mid-2025

Economists at Nationwide Financial, including Chief Economist Kathy Bostjancic, believe Powell’s remarks reinforce the view that the Fed will not cut rates until at least mid-2025. “We are all in a wait-and-see mode—including the Fed,” Bostjancic stated, underscoring the uncertainty surrounding both inflation trends and labor market conditions.

The upcoming January jobs report will be crucial in shaping market expectations. If employment remains strong, it could reinforce the Fed’s cautious stance, delaying interest rate cuts further. However, if job creation slows significantly or unemployment rises unexpectedly, it may accelerate discussions on monetary easing.

With persistent inflation, stable employment, and uncertain fiscal policies, the Fed faces a complex balancing act in determining the appropriate timing for rate cuts. The labor market’s performance in early 2025 will be a key determinant of the central bank’s next moves and the broader economic outlook.

Source: AP

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Warren Takunda

Economic

The British Pound is trading like a safe haven on the day markets respond to President Donald Trump's tariff rollout.

The Dollar is tearing higher, but the UK currency is outperforming the majority of G10 names, shadowing the safe-haven Yen and Swiss Franc.

Outperformance speaks of relative confidence that the UK isn't as economically exposed to tariffs as the major exporters, such as the EU.

Speaking late on Sunday Trump said trade with UK is "out of line," but "can be worked out".

The UK is one of the only countries in the world to have a trade deficit with the U.S. in goods, i.e. the UK imports more U.S. goods than the U.S. imports from the UK.

Simon French, lead economist at Panmure Liberum says the UK has relatively little direct exposure to any tariffs on its goods exports to the U.S. ($64bn/year).

"The transmission is more likely to be a slowing of global economic growth, which the UK is geared into, and tighter financial conditions than the domestic economy needs," says French.

By contrast, Trump said on Sunday the U.S. runs a $300BN deficit with the EU.

Trump, therefore, has little to complain about in terms of trade imbalances when it comes to the UK. The U.S. president also said he was "getting along very well" with UK Prime Minister Keir Starmer, whom he described as "very nice".

Pound Sterling a 'Tariff Trade' Safe Haven_1

Above: GBP outperforms G10 peers on Monday 03 Feb, only lags the evergreen safe-havens.

"So, the UK is way out of line, and we’ll see, the UK, but European Union is really out of line," Trump told reporters. "UK is out of line, but I’m sure that one, I think that one can be worked out. But the European Union is, it’s an atrocity."

The comments come as foreign exchange markets react to weekend news the U.S. imposed a 25% tariff on imports from Canada and Mexico, with 10% being levied on oil imports from the two nations. A 10% tariff was placed on Chinese imports.

Pound Sterling a 'Tariff Trade' Safe Haven_2

Image courtesy of Simon French @ Panmure Liberum.

Trump said tariffs on the EU were certainly coming.

He has yet to issue any direct threats at the UK. Lloyds Bank CEO Charlie Nunn recently said he believed that it could allow the UK "to really stand out."

That’s because of the structure of its economy, the comparative services space and the lack of supply chains heavily bound up in the U.S., he said.

In an FX world where tariffs are in focus, Pound Sterling is a relatively safe haven; having come under pressure in early January, pound exchange rates can recover during February.

Source: Poundsterlinglive

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ING

Economic

Forex

According to preliminary estimates by Istat, Italian inflation accelerated to 1.5% on the year (from 1.3% in December), slightly more than expected. At the heart of the acceleration were mostly regulated energy goods (at +27.8% from +12.7% YoY) and non-regulated energy goods (at -3% from -4.2% YoY) and, to a lesser extent, non-fresh food, which were only partly compensated by the deceleration in transport and communication services.

Core inflation was stable at 1.8% and the harmonised measure accelerated to 1.7% (from 1.4% in December)

As we have seen, the volatile energy components drive price dynamics. As expected, January data very likely picked up the impact of gas price tensions recorded over the last bout of 2024 on energy bills. Non-energy industrial goods were almost flat at -0.1% YoY as in December. Services inflation was also stable at 2.6%, possibly suggesting that underlying wage pressures are not accelerating.

Looking ahead, we believe the risks of a substantial upward inflation surprise for 2025 remain limited, barring a continued acceleration in energy prices. The main components of PPI inflation continue pointing to non-energy goods price stabilisation rather than an acceleration. Poor demand conditions are likely inducing businesses to not pass through to consumers higher energy costs, for the time being. Developments in services, typically more labour-intensive, should more closely reflect wage developments, in turn tied to labour market developments. After two flat growth quarters, the labour market is starting to respond: no apparent job shedding, for the time being, but an increase in unemployment as more inactive people start looking for a job. A cooling labour market looks set to temper wage dynamics over time. Business surveys are showing that pricing intentions are zig-zagging horizontally both in manufacturing and services, with no evidence of an upward trend in the making.

All in all, notwithstanding today’s slight upward surprise, we continue to believe that inflation is set to remain under control in Italy, and to trend towards the 2% area throughout the year. That being said, the external backdrop and the threat of tariffs from the US and possible retaliations, add uncertainty to our view, with upside risks.

Source: ING

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Adam

Economic

Musk’s Plan to Slash Federal Spending by $4 Billion Per Day

Over the past weekend, Elon Musk unveiled his ambitious strategy to cut federal spending on social media platform X. He emphasized that reducing the budget deficit from $2 trillion to $1 trillion by 2026 would require cutting $4 billion in government spending per day.

Musk shared a list of over 100 canceled DEI-related contracts, claiming this move alone could save taxpayers over $1 billion. While this represents only a fraction of his broader cost-cutting plan, Musk remains optimistic that his approach could help balance federal spending without triggering inflation.

His comments, however, have raised concerns about the implications of rapid government downsizing. Critics argue that abrupt budget cuts could destabilize key programs relied upon by millions of Americans, including welfare, infrastructure, and social security initiatives.

Musk himself remains undeterred, boasting about DOGE’s aggressive approach:

“We’re working 120 hours per week while bureaucrats work only 40 hours —that’s why we’re winning.”“Cutting $4 billion per day is possible, but only with Trump’s leadership.”

USAID Faces Shutdown Amid Musk’s Push for Government Downsizing

One of Musk’s most controversial proposals is the closure of the U.S. Agency for International Development (USAID), a move that could eliminate billions in foreign aid spending. In a discussion with Republican senators Vivek Ramaswamy, Joni Ernst, and Mike Lee, Musk revealed that he had personally discussed USAID’s shutdown with Trump, who reportedly supports the decision.

USAID, the world’s largest humanitarian aid organization, manages billions of dollars in aid programs across over 100 countries. The proposed shutdown could have far-reaching consequences, including halting critical security, development, and emergency relief initiatives worldwide.

Tensions escalated when two senior security officials at USAID were placed on leave for refusing to hand over classified documents to Musk’s government review team. Eventually, Musk’s DOGE board gained access to classified intelligence on February 1, including reports on aid distribution and security threats.

A day earlier, Musk’s team had also gained access to sensitive financial data at the U.S. Treasury Department, including Social Security and Medicare payment systems. The Washington Post later reported that a senior Treasury official resigned over concerns that DOGE was overstepping its authority.

Political Fallout and Growing Backlash

Musk’s rapid expansion of influence over federal operations has alarmed both political leaders and government agencies. Democratic Senator Elizabeth Warren has accused Trump of allowing Musk unchecked access to sensitive government information and key decision-making processes.

“This administration is handing over control of taxpayer money and personal data to Elon Musk while cutting essential government programs,” Warren stated.

Meanwhile, former Trump administration official Peter Marocco has been tasked with overseeing USAID’s potential shutdown, which could result in the mass termination of thousands of employees.

Musk’s efforts align with Trump’s broader push to dismantle federal agencies and reduce regulatory oversight, signaling a dramatic restructuring of U.S. governance if Trump returns to power. However, the rapid and unilateral nature of these moves has sparked concerns about executive overreach, lack of transparency, and potential economic consequences.

The Larger Implications of Musk’s Influence Over Government Spending

Musk’s fiscal strategy raises critical questions about the balance between government efficiency and economic stability. While reducing federal spending is a priority for many policymakers, the approach taken by DOGE—involving large-scale program eliminations and agency shutdowns—could lead to significant disruptions in national security, economic stability, and global diplomacy.

As Musk’s plan continues to unfold, the U.S. faces a stark choice:

Streamline government operations at the risk of cutting essential services

Or maintain federal spending levels and risk long-term financial instability

The outcome of this conflict will not only define U.S. economic policy in the coming years but also shape the future role of private sector leaders like Musk in government decision-making.