President Donald Trump on Tuesday unveiled what he hailed as a “massive” bilateral trade agreement with Japan, deferring planned 25% tariffs by cutting import duties to 15% and securing an unprecedented $550 billion investment package from Tokyo. This breakthrough ended weeks of tension ahead of an August 1 deadline for new tariff hikes, according to reports by Reuters, The Guardian, Washington Post and Economic Times. Trump posted on Truth Social that he and Japan had just signed the largest trade deal ever signed between their nations, “it is an exciting time for the United States!” Under this framework, existing tariffs on Japanese automobiles formerly 27.5% will now drop to 15% while looming 25% tariffs are reduced by half and reduced from 25% down to 15% on all Japanese goods (Reuters +5/8/18). Japan pledged an unprecedented pledge of $550 billion in U.S. investments through loans and guarantees, targeting sectors including semiconductors, pharmaceuticals and energy infrastructure such as an Alaska LNG pipeline project (AP News +10) (Reuters = +10) Trump asserted that Americans would receive 90% of the profits generated from this deal, according to The Guardian and Omni Ekonomi (both publications) +15 The Times of India (15). Japanese Prime Minister Shigeru Ishiba welcomed the agreement, declaring the new tariff rate the lowest ever applied by countries that have a trade surplus with the U.S. He noted Tokyo will boost purchases of agricultural goods such as rice from America while maintaining protections for Japanese farming, according to Reuters (YouTube) +11. Global financial markets were swift to react positively. Tokyo’s Nikkei 225 Index surged between 2.4% and 4%, with Toyota and Honda stocks surging 11-14% respectively; Japanese bond prices declined amid rising yields (Reuters). However, this deal leaves steel and aluminum imports subject to 50% national security tariffs from AP News, The Washington Post and Reuters. U.S. automakers such as General Motors (GM), Ford and Stellantis strongly opposed this result, noting it puts North American-made vehicles under the USMCA framework at a disadvantage due to Japan’s lower tariff rate and minimal U.S. content (Reuters). Analysts describe this bilateral deal as an important development in Trump’s reciprocal tariff policy initiated on April 2 (“Liberation Day”), initiating wide-ranging duties later eased through country agreements (Wikipedia +1; CBS News). Critics claim the tariffs are unilateral and based on simplistic calculations of the U.S. trade deficit; while in turn this could reduce pressure on Japan’s economy thereby offsetting earlier forecasts of recession due to tariff threats (see NY Post, The Guardian and Omni Ekonomi for examples). The agreement may help ease tensions over tariff threats without having any real effect on Japan’s economic outlook (sources: New York Post + The Guardian + Omni Ekonomi). economists remain wary of the deal’s uneven structure, its exclusion of key industries and mixed terms between Philippines, Indonesia, UK and EU agreements (The Guardian) * Finalizing this deal required Japan’s negotiator Ryosei Akazawa meeting President Trump at the White House. Dubbed as “#Mission Complete,” this agreement showcases Tokyo’s willingness to compromise just enough to avoid tariffs while maintaining domestic protections; CBS News/Reuters report this development is currently ongoing and expected to conclude later in June or July 2019. As President Trump uses August 1 as a deadline to press trade partners, this deal positions the U.S. as an aggressive negotiator using investment incentives and tariff threats as tools of negotiation. Whether this framework leads to durable economic cooperation with its allies or fuels trade tensions will become clear over time.
