Following US President Donald Trump’s announcement that he would impose a 25% tariff on imported cars and auto parts, Japan’s Prime Minister sounded the alarm on Thursday.

Prime Minister Shigeru Ishiba told lawmakers during a parliamentary session, “We need to consider appropriate responses,” adding, “All options will be on the table.”

This move, seen as undermining a bilateral agreement made between Trump and then-Prime Minister Shinzo Abe in September 2019, came as a surprise to Japan. This limited trade deal had opened Japan’s market to more American agricultural products. The agreement states that the two countries “will refrain from taking measures contrary to the spirit of these agreements.”

Japanese automakers reacted cautiously to the announcement. Toyota, Subaru, Mazda, and Honda issued brief statements saying they were assessing the potential impact.

Imported cars and trucks are currently subject to tariffs of 2.5% and 25%, respectively. When the new tariffs take effect on April 3, these rates will rise to 27.5% and 50%. The 25% tariff will also apply to automotive parts like engines and transmissions, taking effect no later than May 3.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said the government intends to negotiate exemptions. Economists say it is unclear how exemptions might be secured, but there are several options.

According to economists, options Japan might consider include voluntary export restraints, a commitment to increase imports of items like natural gas, grain, and meat, and replacing Russian natural gas with gas from the US. In 2023, 8.9% of Japan’s natural gas imports came from Russia, while 7.2% came from the US.

“Japan will likely be looking at all these options,” said Koichi Fujishiro, a senior economist at the Dai-ichi Life Research Institute.

South Korea in a similar situation

South Korea is also expected to seek exemptions. Analysts said that South Korean automaker Hyundai Motor Group’s announcement earlier this week of a $21 billion US investment would help its negotiating position.

Esther Yim, a senior analyst at Samsung Securities, said, “The US has, in principle, applied a 25% tariff on all imported cars,” adding, “Washington can then negotiate with each country, and I think investment can be used as leverage.”

South Korea’s Ministry of Industry pledged an emergency response by April to help the country’s automakers, who are expected to face “significant challenges” when the tariffs take effect.

Over the years, global automakers have shifted to local production to avoid trade friction. According to the Mitsubishi Research Institute, 60% of Japanese cars sold in the US are produced in the US. This figure drops to 40% for Korean cars. For European brands, the rate is as high as 70%.

Although Ishiba insists all options are on the table, few analysts expect Japan to resort to retaliatory measures, at least at this point. “Japan would gain very little by retaliating against US tariffs,” Fujishiro said.

At a summit with Trump in February, Ishiba pointed out that Japan is the largest investor in the US and a significant job creator, promising to work towards increasing Japan’s investment balance from $783.3 billion in 2023 to $1 trillion.

Cars, Japan’s largest export item to the US, are worth 6 trillion yen ($40 billion) and will account for 28% of Japan’s total exports in 2024. This amount is equivalent to 1% of Japan’s nominal gross domestic product.

Takahide Kiuchi from the Nomura Research Institute estimates that a 25% tariff would reduce Japan’s car exports to the US by 15% to 20% and lower Japan’s GDP by 0.2%.

If Japanese automakers try to respond by shifting production to the US, this would reduce domestic employment and hollow out the country’s economy in the long run.

Masanori Katayama, chairman of the Japan Automobile Manufacturers Association, said at a press conference last week, “Car exports from Japan are necessary to supplement the domestic production of Japanese automakers and to provide a lineup of attractive cars… to meet the diverse needs of American customers through car dealerships in every US state.”

Katayama said that when the US implements the tariff, “a significant production adjustment is expected. The Japanese auto industry consists not only of automakers but also parts suppliers and employs 5.5 million people.”

Katayama insisted that the industry and the Japanese government must come together to take action and keep domestic supply chains intact.

The tariffs are also expected to harm American automakers because they too source parts and manufacture globally to keep costs down and make their cars competitive in the market.

Nomura analyst Anindya Das said General Motors could fall into an operating loss on an annual basis due to its reliance on factories in Mexico. He added that Toyota could also see a 30% drop in operating profit.

Jennifer Safavian, president and CEO of Autos Drive America, an industry group representing international automakers operating in the US, including Toyota, Honda, Nissan, and others, said, “Tariffs imposed today will make it more expensive to produce and sell cars in the US, ultimately leading to higher prices, fewer choices for consumers, and fewer manufacturing jobs in the US.”

A court in South Korea on Wednesday overturned a lower court’s decision, ruling that the main opposition party leader is not guilty of violating election law. If this decision is upheld, it will pave the way for him to run in the next presidential election.

Prosecutors can appeal the decision, which could take the case to the Supreme Court, South Korea’s highest judicial body.

Speaking outside the court after the ruling was announced, Lee Jae-myung thanked the court for the decision, which he described as “the right decision.”

The charges against Lee stem from remarks he made in 2021 while competing in his party’s presidential primary, where he allegedly denied knowing one of the key figures in a real estate development scandal. The scandal involved a redevelopment project in Seongnam city, where Lee was mayor. Prosecutors allege Lee lied about his relationship with businessman Kim Moon-ki to conceal his own culpability in the real estate deal.

Immediately after the court’s decision was announced, Kweon Seong-dong, leader of the ruling People Power Party, called the ruling “regrettable” and urged the Supreme Court to quickly decide the case.

Lee, a trained lawyer and experienced politician, lost the 2022 presidential election by the narrowest margin in South Korea’s democratic history to now-impeached President Yoon Suk Yeol.

Yoon, Lee’s fierce rival, is awaiting a Constitutional Court ruling on his impeachment over charges of leading an insurrection in December. Lawmakers voted to impeach Yoon following his attempt to declare martial law in early December, which he claimed was necessary to protect South Korea from opposition “anti-state forces.” The measure was quickly rejected in the National Assembly, but the attempt triggered a political crisis that continues months later.

The Constitutional Court completed hearings on Yoon’s case late last month and is expected to deliver its verdict within days, although no official date has been announced. If the court finds Yoon not guilty, he will be immediately reinstated. If found guilty, an early election will be held within 60 days.

Data released last week by polling firm Gallup Korea showed Lee as the leading choice among potential candidates for the next presidential election. Lee, with a support rate of 36%, was far ahead of the number 2 likely candidate, conservative Labor Minister Kim Moon-soo.

Yoon’s impeachment delay: Legal rigour or political deadlock?

Beijing has introduced energy efficiency rules for the use of advanced chips that, if strictly enforced, would prevent Chinese companies from buying Nvidia’s best-selling processors in the country.

According to documents reviewed and analyzed by the Financial Times, China’s top economic planner, the National Development and Reform Commission (NDRC), is advising Chinese groups to use chips meeting strict requirements in new data centers and expansions of existing facilities.

The documents indicate that Nvidia’s H20 chip—less powerful than its top-tier graphics processing units but tailored for Washington’s export controls—currently fails to meet the commission’s new rules.

Two people familiar with the matter told the Financial Times that the Chinese regulator has quietly discouraged the country’s tech giants, including Alibaba, ByteDance, and Tencent, from purchasing H20 chips for several months.

They added that the rules are not strictly enforced and have not yet impacted sales of H20 chips in China, which continue to experience strong demand.

However, stricter enforcement by the commission could threaten Nvidia’s $17 billion annual business in the country.

As China accelerates data center construction, the US chipmaker risks losing orders to domestic rivals like Huawei, whose offerings better align with Beijing’s green agenda.

Nvidia is attempting to arrange a meeting between its senior executives and commission chair Zheng Shanjie in the coming months to ease tensions, according to a person familiar with the plans.

These restrictions, introduced by the NDRC last year but not previously reported, emerge amid rising US-China trade tensions as both nations compete to develop advanced artificial intelligence.

Beijing is encouraging local companies to reduce their dependence on products from foreign groups like Nvidia, whose graphics processing units are crucial for developing AI models.

Because these restrictions apply only to data centers under construction, some companies are attempting to circumvent them by replacing older chips in existing facilities with H20s, according to people familiar with the matter.

One source noted that non-compliance could trigger on-site inspections and subsequent fines, an outcome most Chinese companies are keen to avoid.

To address this challenge, Nvidia has prepared adjustments for its H20 chips to meet NDRC requirements. However, these technical changes would likely reduce the chip’s efficiency and harm its competitiveness in the Chinese market.

The commission’s stance sends a tense signal regarding Beijing’s position towards US chip giant Nvidia amidst the high-stakes technological competition between Washington and Beijing.

The H20 chip, Nvidia’s flagship product in China, was approved for sale after the US tightened export controls in October 2023.

Tech giants from Alibaba to Tencent aggressively increased H20 chip orders this year following the launch of DeepSeek’s efficient reasoning model, which spurred an AI boom in the country, according to a person familiar with the matter.

This surge in orders coincided with expectations of further restrictions on Nvidia’s chip sales to China. Bloomberg reported in January that Washington was exploring additional restrictions potentially covering the H20 chip.

Meanwhile, China’s State Administration for Market Regulation reportedly launched an antitrust investigation in December, probing whether Nvidia withheld chip sales from Chinese customers even before the US export ban took effect in late 2022.

According to Nvidia’s fiscal year 2025 annual report, China represents Nvidia’s fourth-largest market, generating $17.1 billion in revenue and accounting for 13% of its total sales.

Nvidia stated, “Our products deliver leading energy efficiency and value in every market we serve,” adding, “As technology rapidly advances, export control policy should be adjusted to allow US firms to offer the most energy-efficient products possible while also enabling the Administration to achieve its national security goals.”