Trump announces massive trade deal with Japan

Trump announces massive trade deal with Japan

President Donald Trump announced a long-awaited trade deal with Japan on Tuesday evening. This framework agreement between allies and major trading partners seemed unattainable just a few weeks ago.

Trade agreement details

“We just made a tremendous deal with Japan, perhaps the biggest deal ever made,” Trump said Truth Social. Under the deal, U.S. importers will pay a 15% “reciprocal” tax on Japanese goods exported to the United States. Japan will also invest $550 billion in the United States, the president said.

Labor market forecasts

Trump added that the US will “receive 90% of the profits.” However, he did not provide details on how these investments work or how profits are calculated. No official term sheet has been published. "This agreement will create hundreds of thousands of jobs - something never seen before. Perhaps most importantly, Japan will open their country to trade, including cars and trucks, rice and certain other agricultural products," Trump posted.

Negotiations and challenges

Shortly after publishing his posts, Trump opened a speech in the East Room of the presidency to mark the trade deal with Japan. "I signed the largest trade agreement in history. I think it may be the largest agreement in history with Japan," Trump said during a reception with Republican members of Congress.

"Their best people were here and we worked long and hard on it. And it's a great deal for everyone," he added.

Challenges in the negotiation process

Despite the tense negotiations, Trump described the agreement as "a very exciting time for the United States of America, particularly because we will continue to have a great relationship with the country of Japan." Late last month, Trump highlighted rice sales as a point of contention between the two countries.

“They don’t want our RICE even though they have a massive rice shortage,” Trump said in one Contribution on Truth Social. Last year, Japan bought $298 million worth of rice from the United States, according to trade data from the U.S. Census Bureau.

The automotive sector as a point of contention

But the automobile sector - a cornerstone of the Japanese economy - was also a point of contention in the negotiations. Trump has repeatedly said that Japan does not import US cars. “We haven’t given them a single car in 10 years,” he said earlier this month. According to the Japan Automobile Importers Association, Japan imported 16,707 units of American automobiles last year.

But US Treasury Secretary Scott Bessent met with Japanese Prime Minister Shigeru Ishiba in Tokyo last week and posted on X that he was optimistic about reaching an agreement - a sign of a possible easing in recent tensions. “A good deal is more important than a hasty deal, and a mutually beneficial trade agreement between the United States and Japan remains possible,” Bessent said.

Japan as an important trading partner

Unlike some other recently announced agreements, such as with Indonesia and the Philippines, Japan is a major trading partner of the United States. Japan is the fifth-largest source of U.S. imports, shipping $148 billion worth of goods to the U.S. last year, according to Commerce Department data. Cars, auto parts, and agricultural and construction equipment are among the top products Americans buy there.

Goods from Japan briefly faced a 24% “reciprocal” tax before Trump imposed a 90-day pause in April. Since then, the goods have been subject to a minimum tax of 10%. In early July, Trump sent a letter to Japanese Prime Minister Shigeru Ishiba threatening a 30% tax starting August 1st. Meanwhile, the US exported $80 billion worth of goods to Japan. Oil and gas, pharmaceuticals and aerospace products were the main exports.

Japan has found itself in an uncomfortable position as China is its largest trading partner and the Trump administration has pressured its allies to reduce their trade levels with China in order to reach a trade deal with the US, multiple reports showed.

An expanded trade agreement

The current U.S.-Japan agreement follows an expanded trade agreement the two countries signed in 2019 that came into effect the following year, allowing more goods to be shipped duty-free. Japan had some influence over the US beyond the trade agreement: the country is America's biggest foreign creditor. Japan holds $1.1 trillion in U.S. Treasury bonds, which are used to finance America's massive and increasing debt.

This story is evolving and will be updated.