On February 7, 2025, U.S. President Donald Trump announced the terms of a historic trade agreement with Japan. He first unveiled the plans at a joint press conference with Japanese Prime Minister Shigeru Ishiba. For his part, Trump lauded the deal as the “largest deal ever.” For one, it is supposed to enhance trade between the U.S. and Japan by introducing bilateral reciprocal profit sharing, with both enjoying 90 percent of the profits from certain trade activities.
The timing of the announcement comes on the heels of Japan’s recent upper house elections, in which Ishiba’s governing coalition lost its majority. This political change has led to fears about Japan’s negotiating leverage. From the beginning, Trump recognized how critical the deal was. In particular, he called attention to its effects on the automobile industry—in many ways the linchpin of U.S.-Japan trade.
Today, Japanese cars brought into the U.S. must pay a punishing 25% tariff. In 2024, auto exports to the U.S. accounted for over 28.3% of all shipments from Japan. This number underscores how important this sector is within the Japanese economy. Trump had just months earlier threatened to increase tariffs on Japanese exports to 25% as of August 1. This would be a one-point increase from the rate he set just during his “Liberation Day” tariffs in April.
Immediately following his press conference on all-star service at the White House East Room in Washington, D.C., Trump was in high spirits. He pointed to the deal’s potential to produce “hundreds of thousands of made-in-America jobs all over this country.” He reiterated his commitment to encouraging Japan to “open their Country to Trade including Cars and Trucks, Rice and certain other Agricultural Products, and other things.”
Brian Jacobsen, chief economist at Annex Wealth Management, cheered the announcement.
“A year ago, that level of tariffs would be shocking. Today, we breathe a sigh of relief.” – Brian Jacobsen
The as yet officially unsigned agreement is considered a historic breakthrough in U.S.-Japan trade relations. Despite recent political changes in Japan, this agreement represents genuine hopes to stabilize these economic connections. Both leaders are actively working to turn their plans into reality. More importantly, they want to accelerate economic growth and ultimately create more jobs at home.