TOKYO/SEOUL: Japanese and South Korean automaker stocks rallied sharply on July 23 following news of a new U.S. trade agreement with Tokyo that will reduce tariffs on Japanese vehicle imports. The move raised hopes that South Korea could soon secure a similar deal, further boosting investor sentiment.

Under the agreement, the U.S. will lower its tariff on Japanese car imports from 25 percent to 15 percent, according to sources familiar with the deal. President Donald Trump's announcement sent shares of major Japanese carmakers soaring, with one rising 13 percent and another more than nine percent. The reduced tariff eases pressure on Japan's top exporters in their most important overseas market.

South Korean automakers also posted substantial gains, climbing more than six percent on optimism that a similar trade arrangement may soon be reached between Seoul and Washington. Both countries are major global auto exporters and critical U.S. allies in Asia.

The new deal with Japan is considered the most significant among several trade agreements finalized by the White House before an August 1 deadline, when steeper import levies are due to take effect.

While Trump's social media post did not disclose specifics about the auto provisions, officials from both the industry and government confirmed the tariff reduction. Vehicles are a central pillar of Japan's exports to the U.S., accounting for more than a quarter of total shipments.

However, challenges remain. Tariffs on auto imports from Canada and Mexico are still set at 25 percent, and those countries play a key role in Japanese auto manufacturing. Mexico, in particular, is a vital production hub, with facilities operated by Japanese and Korean automakers. Shares of another Japanese carmaker with operations in Mexico also jumped nearly 9 percent.

The deal is likely to increase pressure on South Korea to strike its own agreement before the August deadline. Seoul's industry minister said the government is closely monitoring the terms of the U.S.–Japan accord. South Korea, which competes directly with Japan in industries like autos and steel, is scheduled to hold high-level trade talks with Washington on Friday.

The auto sector is a major driver of exports, employment, and national pride for both Japan and South Korea. Despite existing tariffs, the U.S. remains the largest and most lucrative market for many Asian carmakers. For example, one Japanese company sold 2.3 million vehicles in the U.S. in 2024, making up over 20 percent of its global total. North America is also its second-largest source of revenue after Japan.

Similarly, South Korea's top automaker reported its highest North American revenue in nearly a decade last year, underscoring the region's strategic importance to Asia's vehicle manufacturers.