Global Markets Rally on US-Japan Trade Deal and EU Tariff Progress

Global stock markets surged on Wednesday as a US-Japan trade deal and signs of a US-Europe agreement lifted major indexes to new highs. The US-Japan deal averted the worst-case scenario for the global economy, with tariffs on Japanese imports set at 15%, lower than the previously threatened 25%. The US bond market has been calm despite fears over tariffs, deficits, and inflation, thanks to increased foreign demand.

Global stock markets surged on Wednesday as a US-Japan trade deal and signs of a US-Europe agreement lifted major indexes to new highs. The US-Japan deal averted the worst-case scenario for the global economy, with tariffs on Japanese imports set at 15%, lower than the previously threatened 25% [1]. The US bond market has been calm despite fears over tariffs, deficits, and inflation, thanks to increased foreign demand [2].

The European Union and the United States are nearing a trade agreement that would establish a 15% baseline tariff on most EU exports, marking a significant shift from previous threats of higher duties [3]. This proposed framework aligns with recent U.S. bilateral deals, such as the U.S.-Japan agreement, which also set a 15% baseline tariff. The EU and U.S. have been negotiating to avoid a potential €93 billion retaliatory tariff plan from the EU, which would target American goods if no deal is finalized by August 1 [4].

The agreement’s structure incorporates the EU’s most favored nation rate of 4.8%, resulting in an effective increase of approximately 10.2 percentage points [4]. This approach reflects the Trump administration’s strategy of standardizing tariffs with major trade partners while avoiding full-scale escalations. The EU’s willingness to engage in these negotiations appears influenced by Japan’s success in securing a similar tariff rate, which reduced automotive tariffs from 25% to 15% [5].

The 10-year Treasury yield on Tuesday closed at 4.34%, below the year-to-date average of 4.40%, and less than 10 basis points above the one- and two-year averages [6]. The so-called bond vigilantes, those investors determined to bring profligate governments into line by forcing up their borrowing costs, might have been driving bond prices lower earlier this year, but they are taking a back seat now. The TIC data show that the foreign official and private sectors bought a net $146.3 billion of U.S. Treasury notes and bonds in May on a non valuation-adjusted basis, the second-highest monthly total ever [7].

Analysts suggest the deal’s success hinges on resolving contentious issues such as automotive access to the U.S. market and agricultural subsidies. While the 15% baseline offers a middle ground compared to the 30% threat, it still represents a sharp increase for EU exporters. The EU’s retaliatory threat underscores the high stakes involved, with trade officials warning that delays could trigger immediate action [8].

For now, the focus remains on finalizing the agreement before the August 1 deadline to avoid a trade war that could destabilize global markets. The EU’s preparedness to retaliate reflects its leverage in sectors like automotive and aerospace, where U.S. dependence on European exports remains significant. However, the 15% tariff deal could set precedents for future negotiations and potentially complicate long-term economic integration between the transatlantic partners [9].

References:
[1] Reuters. (2025, July 23). US-EU trade talks boosted by Trump's agreement with Japan. Retrieved from https://www.reuters.com/business/eu-heading-towards-15-tariff-deal-with-us-eu-diplomats-say-2025-07-23/
[2] Reuters. (2025, July 23). Foreign demand for US Treasuries holds off bond vigilantes. Retrieved from https://www.reuters.com/markets/us/foreign-demand-us-treasuries-holds-off-bond-vigilantes-2025-07-23/
[3] Capital Brief. (2025, July 23). EU and US near 15% tariff deal, reports say but talks fluid. Retrieved from https://www.capitalbrief.com/briefing/eu-and-us-near-15-tariff-deal-reports-say-but-talks-fluid-2ab54390-0b9b-43a8-b077-acea3bcd546a/
[4] TT News. (2025, July 23). EU progress in trade deal. Retrieved from https://www.ttnews.com/articles/eu-progress-trade-deal
[5] CNBC. (2025, July 23). Trump shifts gears to EU after striking Japan deal. Retrieved from https://www.cnbc.com/2025/07/23/trump-shifts-gears-to-eu-after-striking-japan-deal.html
[6] Reuters. (2025, July 23). US bond market resilience despite inflation fears. Retrieved from https://www.reuters.com/markets/us/foreign-demand-us-treasuries-holds-off-bond-vigilantes-2025-07-23/
[7] Bank of America. (2025, July 23). Foreign demand for US Treasuries. Retrieved from https://www.bankofamerica.com/us-rates-strategy-team
[8] The Wall Street Journal. (2025, July 23). EU seeks 15% baseline tariffs in US trade deal. Retrieved from https://www.wsj.com/livecoverage/stock-market-today-dow-sp500-nasdaq-07-23-2025/card/eu-seeks-15-baseline-tariffs-in-u-s-trade-deal-n3caicLesAN5w0RfPlGO?gaa_at=eafs&gaa_n=ASWzDAiZp7rwqNtjCpR4DjEhoPZQifX4bKphkp1GHuU3LfgMBubAwnaeoJrr&gaa_sig=cYSWRMMJLKWOClpEnLCqZkyzut2chj7Ak-PydFNhLdJFW-AKtRTCZxMRa504gC_EIJksQuhfmm7ksGbSUqm3ag%3D%3D&gaa_ts=688138d4
[9] Reuters. (2025, July 23). US-EU trade talks boosted by Trump's agreement with Japan. Retrieved from https://www.reuters.com/business/autos-transportation/us-eu-trade-talks-boosted-by-trumps-agreement-with-japan-2025-07-23/