Trump strikes trade deal with Japan to cut tariffs

Business Times

5 days ago

[WASHINGTON/TOKYO] The United States and Japan struck a deal to lower the hefty tariffs US President Donald Trump threatened to impose on goods from its Asian ally that included a US$550 billion package of US-bound investment and loans from Tokyo.
The agreement will bring immediate relief to Japan's critical autos sector with existing tariffs cut to 15 per cent from 25 per cent, and proposed levies on other Japanese goods that were set to come in on Aug 1 also cut by the same amount.
Autos make up more than a quarter of all Japan's exports to the United States.
'I just signed the largest TRADE DEAL in history with Japan,' Trump said on his Truth Social platform. 'This is a very exciting time for the United States of America, and especially for the fact that we will continue to always have a great relationship with the Country of Japan,' he added.
Ishiba, who local media reported will soon resign after a bruising election defeat on Sunday (Jul 20), hailed the deal as 'the lowest figure among countries that have a trade surplus with the US'.
The US investment package includes loans and guarantees from Japanese government-affiliated institutions of up to US$550 billion to enable Japanese firms 'to build resilient supply chains in key sectors such as pharmaceuticals and semiconductors', Ishiba said.
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Japan will also increase purchases of agricultural products such as US rice, a Trump administration official said. Ishiba said the share of US rice imports may increase under its existing framework but that the agreement would 'not sacrifice Japanese agriculture'.
The announcement ignited a rally in Japanese stocks, with the benchmark Nikkei climbing 2.6 per cent to its highest in a year. Shares of automakers surged in particular, with Toyota up more than 11 per cent, and Honda and Nissan both up more than 8 per cent.
The exuberance extended to shares of South Korean carmakers as well, as the Japan deal stoked optimism that South Korea could strike a comparable deal. The yen firmed slightly against the US dollar, while European and US equity index futures edged upward.
But US automakers signalled their unhappiness with the deal, raising concerns about a trade regime that could cut tariffs on auto imports from Japan to 15 per cent while leaving tariffs on imports from Canada and Mexico at 25 per cent.
'Any deal that charges a lower tariff for Japanese imports with virtually no US content than the tariff imposed on North American-built vehicles with high US content is a bad deal for US industry and US auto workers,' said Matt Blunt, who heads the American Automotive Policy Council which represents General Motors Ford and Chrysler parent Stellantis .
'Mission complete'
Autos are a huge part of US-Japan trade, but almost all of it is one way to the US from Japan, a fact that has long irked Trump. In 2024, the US imported more than US$55 billion of vehicles and automotive parts while just over US$2 billion were sold into the Japanese market from the US.
Two-way trade between the two countries totalled nearly US$230 billion in 2024, with Japan running a trade surplus of nearly US$70 billion. Japan is the fifth-largest US trading partner in goods, US Census Bureau data show.
Trump's announcement followed a meeting with Japan's top tariff negotiator, Ryosei Akazawa, at the White House on Tuesday.
'#Mission Complete,' Akazawa wrote on X, later saying the deal did not include Japanese exports of steel and aluminium that are subject to a 25 per cent tariff, nor any agreement on defence budgets.
The deal was 'a better outcome' for Japan than it potentially could have been, given Trump's earlier unilateral tariff threats, said Kristina Clifton, a senior economist at the Commonwealth Bank of Australia in Sydney.
Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that 'with the 15 per cent tariff rate, I expect the Japanese economy to avoid recession'.
Japan is the largest investor in the United States. Together with pension giant GPIF and Japanese insurers, the country has about US$2 trillion invested in US markets.
Besides that, Bank of Japan data shows direct Japanese investment in the United States was US$1.2 trillion at the end of 2024, and Japanese direct investment flows amounted to US$137 billion in North America last year.
Speaking later at the White House, Trump also expressed fresh optimism that Japan would form a joint venture with Washington to support a gas pipeline in Alaska long sought by his administration.
'We concluded the one deal ... and now we are going to conclude another one because they are forming a joint venture with us at, in Alaska, as you know, for the LNG,' Trump told lawmakers at the White House. 'They are all set to make that deal now.'
Trump aides are feverishly working to close trade deals ahead of an Aug 1 deadline that Trump has repeatedly pushed back under pressure from markets and intense lobbying by industry. By that date, countries are set to face steep new tariffs beyond those Trump has already imposed since taking office in January.
Trump has announced framework agreements with Britain, Vietnam, Indonesia and paused a tit-for-tat tariff battle with China, though details are still to be worked out with all of those countries.
At the White House, Trump said negotiators from the European Union would be in Washington on Wednesday. REUTERS