Who buys the F-150s, and more Japan deal mysteries

Japan Times

3 days ago

The long-awaited trade deal between the U.S. and Japan has investors celebrating after months of uncertainty. But as the song goes, nagging questions always remain.
Who is going to buy the "cars, SUVs and trucks' that U.S. President Donald Trump has promised to sell? Who is going to purchase the 100 Boeing jets? And what possible structure could the $550 billion fund, allegedly financed by Tokyo with 90% of profits going to U.S., actually take?
Answers are sorely needed, not just because of an already growing comprehension gap between the countries over what was actually agreed, but to inform South Korea, the European Union and other close U.S. allies who are trying to wrap up similar deals before Aug. 1.
Let's start with autos, long the main source of Trump's dissatisfaction with Tokyo, as well as the largest single cause of the trade deficit. The White House fact sheet (if indeed it can so be called) declared that "long-standing restrictions on U.S. cars and trucks will be lifted, granting U.S. automakers access to the Japanese consumer market.'
Of course, U.S. carmakers have enjoyed unlimited access to the Japanese market for decades. As I noted in April, the problem is that U.S. cars just aren't good enough for the local consumer — and Detroit largely isn't interested in trying to muscle its way into a hyper-competitive market dominated by domestic players.
Tokyo can try making it a little easier to import U.S. vehicles, such as simplifying inspection procedures. But it can't rebuild cities to fit the bloated models U.S. automakers favor. Around 84% of streets in Japan are municipal roads with an average width of just 3.7 meters (about 12 feet).
Even if Tokyo gave everyone a Ford F-150 pickup, its 2.4-meter width would prevent two from passing on narrow streets. Hence cute minivans and kei-cars dominate while, as my colleague Liam Denning said this week, "U.S. automakers do not, in general, make an adorable little anything.' In any case, Japan's auto market has been shrinking for years, with new cars sold down about 20% from a 1990s peak. Automakers constantly fret that young people are losing interest in learning to drive, while the growing numbers of elderly citizens are encouraged to return their licenses.
But more significant is what form the $550 billion investment fund will take. Treasury Secretary Scott Bessent said that the "innovative financing mechanism' was the key to Tokyo getting a deal at all. But neither side seems to agree on what it looks like.
The idea first surfaced in May when the Financial Times reported that SoftBank Group founder Masayoshi Son had suggested a joint sovereign wealth fund. The White House calls it an "investment vehicle' that will "rebuild and expand core American industries.' Prime Minister Shigeru Ishiba, however, refers to a combination of equity, loans and guarantees that will be led by the Japan Bank for International Cooperation and guarantees by Nippon Export and Investment Insurance. That sounds more like overseas development aid than a wealth fund — though few could argue American infrastructure might actually benefit from that.
Trump now promises Japan will "give us 90% of $550 billion!' Tokyo is saying that applies to projects where 90% of investment is from the U.S. — in other words, profits are proportional. Does the figure include funding already pledged, such as SoftBank's promised $100 billion? Who knows?! Indeed, a leaked photo from the talks shows what looks like a proposal from Japan for a $400 billion fund, crossed out with $500 billion handwritten on top. That proposal also suggested a 50% profit share. Is this just repackaged existing spending into a simple PowerPoint slide? After all, Japan already invested $783 billion in the U.S. in 2023 and Ishiba pledged in January to boost that to $1 trillion in the future.
The problem is that at some stage, this needs to be worked into actual policies. And this is where Ishiba's rush to agreement might come back to bite, especially if he's no longer in the job when the talks get down to details — something that, despite his denials, still seems all but certain after the drubbing his Liberal Democratic Party took in recent Upper House elections.
There are plenty of parts of the deal that do make sense. The 100 Boeings can find a home at the country's airlines, though Japan has admitted the number includes at least some already-planned purchases. As the world's largest buyer of liquid natural gas, Tokyo's participation in the Alaska project always seemed logical. Even if the two sides don't seem to agree on what they decided on defense, Japan needs to spend more and the U.S. is the logical seller. Above all, it's encouraging to see the White House, after all these months of tense relations, again describe its ally as the "cornerstone of peace in the Indo-Pacific.'
But with all these questions — and Washington continuing to hold the threat over Japan's head with a quarterly evaluation of its compliance with the deal — the market's sigh of relief might still be premature.
Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas.