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Weekend Reads
After more than three months of formal negotiations and many more months of speculation about the Trump administration’s trade and economic policy toward Japan, Washington and Tokyo have agreed to a trade deal.
Both sides would admit negotiations were a challenge. But the deal affirms each country’s priorities, ensures economic benefits for both Japan and the United States, and promises to deepen the two countries’ industrial, technological, and energy cooperation.
As the US continues to negotiate with the European Union, South Korea, Taiwan, and China on trade, William Chou explains why the deal with Japan succeeds and what other leaders should learn from these negotiations.
Key Insights
1. The deal secures each nation’s major priorities.
There are several mutually beneficial terms of the deal that are worth highlighting:
- Japan will create a $550 billion investment fund to help “rebuild and expand core American industries.”
- The US reduced reciprocal tariffs on Japan from 25 percent to 15 percent, cut Section 232 tariffs on automobiles, and granted Japan a safety clause to guarantee it pays the lowest possible rate on Section 232 tariffs for semiconductors and pharmaceuticals.
- Japan will purchase $8 billion of American agricultural goods and 100 Boeing aircraft. It will also increase its expenditures on US military equipment from $14 billion to $17 billion.
- Tokyo is exploring ways it could participate in the Alaskan liquefied natural gas project.
2. The deal opens the door for US-Japan conversations on other important issues.
The trade deal will shape other aspects of US-Japan relations like Japanese defense spending and currency rates. In 2022, Japan announced plans to increase its defense budget to 2 percent of its gross domestic product by 2027. But recent events have reignited Japanese officials’ fears that the US government, especially the Department of Defense, will demand that Japan commit to a significant defense spending increase. Additionally, Trump grouped Japan with China as a currency manipulator to help justify tariffs in March. This prompted Ishiba to state in the Diet that Japan was not intentionally pushing down the yen’s value to increase exports. During trade talks, lead negotiator Ryosei Akazawa largely avoided discussions on currency rates. With the conclusion of the deal, these discussions may return.
3. Other countries may follow Japan’s lead.
The US-Japan trade deal also provides a model for US deals with the European Union and South Korea. Like Japan, these entities are major US trading partners with significant trade surpluses. Reports indicate that Brussels is on track to agree to 15 percent reciprocal tariffs and automotive tariffs. South Korean government and industry officials are also aiming to secure a 15 percent tariff in exchange for a similar industrial investment fund and increased market access for US corn products. Given the number of states hoping to lock down deals before the White House’s August 1 deadline, the US could benefit from having the EU and South Korea follow the Japanese template.
Quotes may be edited for clarity and length.
Go Deeper
Mike Gallagher explains in The Wall Street Journal that a stronger US-Japan alliance on trade and technology would benefit America while deterring China.
As Japan navigates demographic shifts and its global influence increases, Tokyo stands out as a hub for innovation and investment. Governor Yuriko Koike joined Hudson Japan Chair Kenneth Weinstein to discuss the city’s role in shaping Japan’s engagement with the US and the world.
Watch the event, read the transcript, or listen to the podcast here.
Paul Sracic explains how domestic political concerns—like broad support for tariffs among Trump’s voter base—shaped the trade deal.
