Trump-Japan deal cheers markets, but may be ephemeral

AllAfrica

23-07-2025

A year ago, the notion of a 15% tariff on Japanese cars entering the US would have ignited uproar, with both sides braced for economic upheaval.
Today, with US President Donald Trump unveiling a sweeping trade pact that halves previously threatened levies and secures a US$550 billion Japanese investment in America, we're seeing a recalibration, not capitulation, in global commerce.
This deal, which trims auto tariffs from 25% to 15%, represents a pivotal shift. It reassures markets while signaling a tactical win for US trade strategy, though it does not resolve every friction point, especially those tied to agriculture.
Nonetheless, the immediate response from Tokyo's stock markets—Japan's top automakers' shares rallied with double-digit gains while the Nikkei leapt—speaks volumes about investor confidence.
Yet, this breakthrough comes amid political upheaval in Japan. Prime Minister Shigeru Ishiba's governing coalition has just lost control of the Upper House, marking the first time since 1955 that the ruling Liberal Democratic Party lacks a majority in either chamber.
Despite Ishiba's vow to stay on 'to see this through,' internal pressure is mounting, with whispers that he may resign by late August. The timing raises a delicate question: is this deal a lifeline for Ishiba, or a political anchor weighing him down?
By lowering tariffs to 15% and landing a headline 90% profit allocation for the US, Trump has reshaped a looming trade war into something more akin to a managed retreat. It safeguards American manufacturing and investors while preserving Japan's access to critical export markets.
Global equity markets reacted well, not because tariffs vanished, but because certainty arrived. They may still shudder slightly at 15%, but at least there's clarity on when they'll fire. Japan's economic engines, automakers, especially, can now plan with confidence instead of fear.
Ishiba's weakened mandate complicates ratification of any deal. Without Upper House control, the LDP will face tussles within its own ranks. Should a backlash arise, especially over rice and farm exports, perhaps the most sensitive component, Tokyo could renege.
Even Ishiba's own standing might simmer into a career-defining crisis.
This deal proves tariffs aren't just economic weapons; they're tools of negotiation. The US wielded the threat of 25% duties to extract unprecedented investment pledges. It's a reminder: trade policy is foreign policy in disguise. When leverage is applied, balance sheets follow suit.
So is the Japan deal a template for the region? A 15% benchmark now exists not just for Tokyo, but for Seoul, Taipei and beyond. Also, with gas deals lined up with Europe reported on the table next, this may mark a new strategic scaffold under Trump's trade architecture.
The deal is significant and a far more balanced compromise than had been anticipated. Yet, it's also fragile, dependent on domestic support in Tokyo, and must be implemented quickly enough to meet an August 1 deadline. Without parliamentary control, Ishiba's political capital is limited; without political cover, the deal could stall or collapse.
In the end, markets applauded the outcome—but politics in Japan will determine its longevity. The outcome isn't simply whether the deal is made, but whether it endures amid political turbulence.
Last year, 15% tariffs were unthinkable. Today, we're living with the fallout and the opportunities. This isn't just a trade truce; it's a strategic pivot. However, pivots only matter if momentum holds. But in Tokyo, momentum just lost its majority.