US-Japan trade deal hinges on fund that remains a puzzle
But the lack of detail over Tokyo's pledge to set up a US$550 billion US investment fund is raising questions about the viability of an agreement that's been floated as a potential template for other major trading partners.
The fund is a centrepiece of the deal announced by Trump that imposes 15 per cent tariffs on Japanese cars and other goods. While the start date and other basic elements are still unknown, Treasury Secretary Scott Bessent warned this week that the US would monitor implementation and bump the rate up to 25 per cent if Trump is not satisfied.
The two countries' leaders seem at times to be talking at cross purposes. The White House said over US$550 billion will be invested under the direction of the US, and Trump said on social media that 90 per cent of the profits will be given to America. Prime Minister Shigeru Ishiba, on the other hand, said Japan would offer a mixture of investment, loans, and loan guarantees up to a maximum of US$550 billion.
The fund will be supported by government-owned organisations Japan Bank for International Cooperation and Nippon Export and Investment Insurance, according to Ryosei Akazawa, Japan's chief negotiator on the deal, who said he also expected the private sector to be involved.
Who exactly will be funding the bulk of the amount and over what time period remains unknown. In the fiscal year 2024, JBIC invested about 263 billion yen (S$2.3 billion) in North America, or roughly 0.3 per cent of the figure now being touted.
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'The Japanese will finance the project and will give it to an operator and the profits will be split 90 per cent to the taxpayers of the US of America,' Commerce Secretary Howard Lutnick said on Bloomberg TV after the deal was struck, citing potential examples like pharmaceutical plants or chip fabs.
Ishiba on the other hand is characterising the fund as a way to support Japanese firms' investment into the US. The prime minister emphasised it will benefit both Japan and the US, and will target strategically important industries.
SoftBank Group last year pledged to invest US$100 billion in the US over the next four years, while Nippon Steel announced an US$11 billion investment in US Steel's operations by 2028, following its US$14.1 billion purchase of the Pittsburgh-based producer last month. Both companies have also committed to creating significant employment in the US.
Whether those figures will be considered part of the deal by the US is also unclear.
'They came to us with the idea of a Japan-US partnership, where they are going to provide equity, credit guarantees and funding for major projects in the US,' Bessent said. He added that the foreign direct investment pledge is 'all new capital.'
The White House factsheet on the trade deal mentions that Japan will also buy 100 Boeing planes as well as US defence equipment worth additional billions of US dollars annually. Akazawa said both these pledges were based on existing plans by Japanese airlines and the government, respectively.
'We've explained to the US side Japan's thinking behind defence equipment purchases as part of our efforts to strengthen defence capabilities,' said Akazawa. 'But strengthening defence wasn't a topic in the trade and tariff negotiations.'
Akazawa said he hoped the reduced car tariff rate would take effect as soon as possible, and that he expected the broader 15 per cent levy to be imposed from Aug 1. There has been no discussion of compliance or monitoring, he added.
'I've travelled to the US eight times,' Akazawa told reporters in Tokyo shortly after returning to Japan. 'But I don't remember discussing how we'll be implementing our agreement, or how we'll make sure it's implemented.' BLOOMBERG
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