Japan’s trade negotiations with the United States have taken a complex turn following President Donald Trump’s recent declarations of an impending trade deal. Fortunately, Japan’s lead trade negotiator, Ryosei Akazawa, has been out and about sharing lessons learned as negotiations proceed. He underscores some huge structural imbalances between Trump’s idea of the investment and the actual investment package. What was once a huge $550 billion bet on U.S. companies has come into sharper focus. This level of scrutiny exposes several key cracks in the negotiation playbooks employed by both countries.
At a press briefing, Akazawa tackled the gap between Trump’s claims and Japan’s view of profit-sharing. Trump appealed to his base with a terrible deal for the U.S. At the same time, Japan’s Akazawa underscored that Japan is looking for a more equitable distribution, commensurate with contributions from both countries. This divergence begs the question of whether this proposed deal is even reachable and what that might portend for transatlantic trade relations even if it is.
Investment Package and Profit Distribution
National negotiations are underway on a $3-$4 trillion investment package. Including deals yet to be announced, Japan plans to spend $550 billion establishing or expanding U.S. operations. This commitment might not be as clear cut as it first seems. Speculation suggests that Japan will not accept Trump’s demand that a 90-10 profit split come from this Korean investment. They just as clearly are not retreating on this one.
Akazawa added that the markets would view Japan as being willing to just give away $550 billion with no return.
“Some people are saying Japan is simply handing over $550 billion, but such claims are completely off the mark.” – Ryosei Akazawa
Japanese officials are understandably keen to avoid enshrining any ambiguity. They will return investment profits based on the real dollar contributions of Japanese and American participants in the joint venture. So far, Japan is unwilling to cede enough of these lucrative profits to make this work. In exchange, they recognize an equally paltry benefit in return — such as simply reducing tariffs on goods exported to the U.S.
Japan’s expectation has always been that the final terms would base profit-sharing on each party’s ratio of investment. This more collaborative approach would better express the U.S. government’s preference for a reciprocal, cooperative partnership instead of an imbalanced fiscal burden on Japan.
Market Reactions and Cautionary Statements
Given the circumstances created by the President’s tweets, Japanese officials have actively and effectively worked to shape market expectations. Following Trump’s announcement of a preliminary trade deal and the proposed 15% tariff fee on all goods imported from Japan, concerns arose that these statements might create unrealistic anticipations among investors.
In fact, Japanese government representatives have been actively contacting news media in an attempt to cool any exuberance about the deal. They did, however, stress that all deals should reflect a balanced assessment of contributions. They’re hoping to steer clear of any one-sided deals that buttress U.S. dominance. It makes sense that Japan is taking a cautious stance to make sure these investments return a fair value. This is acutely essential given the scale of the anticipated financial investment.
Whether or not to invest that $550 billion is not the question. Japan’s officials almost universally express concerns over ceding such a significant share of revenue in perpetuity. This investment package should ignite an exciting conversation. It highlights the consequences of international trade agreements on each country in the larger discussion of global trade.
The Discrepancy in Negotiation Strategies
As the negotiations unfold, we’re beginning to see some real cracks develop in Trump’s negotiation tactics. This leads to serious questions over the sustainability of these MOUs in practice. Trump’s assertions stand in stark contradiction to Japan’s official rebuttals. This conflict points to deeper, troubling misalignments on how to work together.
Japan is calling for an equitable and transparent profit-sharing mechanism. This strategy is in direct opposition to the Trump administration’s assertion that the U.S. should reap 90% of the returns from this colossal investment. These immediate contradictions further complicate good-faith negotiations. More importantly, they signal what the challenges might be in coming to a unified agreement that both sides can accept.
Akazawa’s perspective suggests that Japan is coming into these negotiations with a strong sense of its own interests and priorities. Japan is opening up markets for American businesses to invest in. In exchange, it seeks to make sure that these investments produce fair returns on profit distributions.