On Wednesday, President Donald Trump achieved one of those breakthroughs – a big new trade deal with Japan. This agreement will lower tariffs on Japanese exports. Japan’s Prime Minister Shigeru Ishiba said the deal was finalized. It substantially reduces tariffs, from 25% to 15%, though both countries agree this is a welcome step in the right direction.
The pact comes none too soon. Japan is on the cusp of a major tariff increase, going to 25% on reciprocal tariffs. But under the terms of this new agreement, Japan will continue to have the tariff rate even lower at 15%. This ruling now takes the heat off Japanese exporters for the short term economically. It gives Prime Minister Ishiba a chance to present the deal as a major victory to his home audience.
Trump has threatened a 25% tariff on Japanese exports to the U.S. before. He provided this warning if a deal was not reached before August 1. All the urgency and drama surrounding the negotiations underscored just how important this deal is for both countries. Help make Japan a key market for U.S. ag products valued at nearly $17 billion in 2022.
In an email conversation with TQ, economist Shigeto Nagai explained what the agreement could mean in practice. He observed, “15% is a best compromise at this stage of the game. This sentiment illustrates the deep cynicism and even anger that engulfs current international trade negotiations. Japan’s automotive and steel industries stand to benefit the most from the lowered tariffs. These sectors were the main focus of protectionist Republican Trump’s tariff policies, thus making this agreement an important victory for Japanese exporters.
Far worse, Japan has committed to pay assorted reciprocal tariffs on Japanese goods that the United States would apply. The new minimum rate will be 15%. In return, the U.S. expects a massive public-private investment from Japan, totaling $550 billion. This investment will continue to bolster several sectors of the American economy. It will create deeper economic integration between the two countries.
Trump’s whiteboard, of course, was already filled with a framework agreement Trump announced with Japan. He described analogous partnerships with Britain, Indonesia and Vietnam. In this sense, Indonesia will be of great importance to the U.S. in terms of supplying critical minerals. They are becoming eager to enter into contracts valued at “tens of billions of dollars” for American goods.
Trump stated, “It is agreed that Indonesia will be Open Market to American Industrial and Tech Products, and Agricultural Goods, by eliminating 99% of their Tariff Barriers.” He further emphasized the favorable terms for American products entering Indonesia: “The United States of America will now sell American Made products to Indonesia at a Tariff Rate of ZERO, while Indonesia will pay 19% on all of their products coming into the U.S.A.”
Assuming Ishiba’s confirmation of the new trade deal clinches it, that will be a remarkable milestone in U.S.-Japan relations. He stated, “This is precisely the result of my consistent advocacy and strong lobbying of the US since I proposed ‘investment over tariffs’ to President Trump at our White House summit in February this year.” The announcement is itself a strategic success for Ishiba. Now he can use this agreement to prove the power of his trade buster negotiating skills.
Japan’s tariffication rate, which was supposed to rise to 25% on reciprocal tariffs, remained fixed at 15%. This is the worst number thus far of any country with a trade surplus with the U.S., Ishiba continued, stressing the importance of keeping tariff rates competitive.
Japan’s chief trade negotiator visited the White House prior to the announcement and expressed satisfaction with the negotiations through social media, stating: “Mission accomplished.” This expression comes to the core of Japan’s relief at preventing even higher tariffs while ensuring the best possible outcome in trade relations.