Japan Avoids 25 Percent Tariffs With Investment Pledge in Landmark US Trade Deal

The Diplomat

2 days ago

The deal reduces tariffs on Japanese exports, including autos and auto parts, to15 percent, in exchange for Japanese investment and import commitments.
Japan's Economic Revitalization Minister Akazawa Ryosei (right) greets U.S. Treasury Secretary Scott Bessent as both attend the U.S. National Day celebration at the Osaka World Expo, July 19, 2025.
Japanese exporters narrowly avoided steep U.S. tariff hikes under a deal reached this week that will cap reciprocal tariffs at 15 percent and deliver $550 billion in Japanese investment aimed at bolstering U.S. infrastructure and industry.
The agreement follows months of aggressive tariff posturing by the Trump administration. A 25 percent blanket tariff on some 4,000 individual Japanese product categories, initially scheduled to take effect on August 1, had threatened to destabilize Japan's economy.
Under the landmark agreement, the reduction in tariffs from 25 percent to 15 percent, effective August 1, will also apply to Japanese automobiles and auto parts, which have been under sector-specific 25 percent tariffs since April and May 2025 – a major source of bilateral trade friction.
But, Japan may have only found temporary relief. It remains vulnerable to economic retaliation, with U.S. Treasury Secretary Scott Bessent warning that if Japan fails to uphold its end of the deal, Washington could reinstate the 25 percent tariffs.
Japan's implementation of the agreement will be assessed quarterly. According to Bessent, 'If President Trump is dissatisfied, tariffs on automobiles and other products will revert to 25 percent. At a 25 percent tariff rate, Japan's economy, especially its auto industry, would not be able to function.'
Behind the scenes, Japan's negotiators, led by Economic Revitalization Minister Akazawa Ryosei, reportedly proposed what Bessent described as an 'innovative framework' for investment and tariff alignment. Japanese Prime Minister Ishiba Shigeru appointed Akazawa as lead negotiator in April. Akazawa took seven trips to the U.S. over the next three months, meeting with Bessent to discuss trade, non-tariff barriers, and economic security.
After their White House meeting on Tuesday, Akazawa posted 'Mission Complete' on social media platform X.
For Trump, the deal marked a personal accomplishment. He declared, 'I signed the largest trade deal in history. Japan sent its best people. We worked long and hard. This is a great deal for everyone.'
During talks, U.S. officials made clear that lowering tariffs would not be enough. Japan must also begin dismantling its regulatory frameworks, which have long been criticized for shielding its domestic industries from foreign competition.
The revised trade agreement comes with clear purchase and import obligations Japan has pledged to buy 100 Boeing aircraft, increase rice imports from the U.S. by 75 percent, and raise annual defense-related procurement from U.S. defense contractors from $14 billion to $17 billion
Beyond rice, Washington is also pressing for greater access to Japan's beef, dairy, and processed food markets, where import restrictions, subsidies, and labeling requirements have been cited by U.S. trade negotiators as persistent obstacles.
While no specific quotas or product categories were publicly confirmed beyond rice, Japanese officials have signaled openness to further liberalization in these areas as part of broader efforts to meet U.S. expectations.
In the auto sector, Tokyo pledged not to introduce new quotas or technical restrictions that could hinder U.S. car and truck exports. This commitment addresses U.S. criticism that Japan's dealership networks and emissions rules have effectively kept foreign automobile brands out, even in the absence of high tariffs.
Tokyo also reportedly secured assurances that if future U.S. tariffs are imposed on 'sensitive' goods such as semiconductors or pharmaceuticals, Japan would not be treated less favorably than other trading partners.
Trump also announced a joint U.S. and Japan venture to develop the $44 billion Alaska LNG project, which involves a 800-mile pipeline and liquefaction terminal in Nikiski, Alaska. Although no formal agreement has been signed, Japanese energy companies have expressed interest in sourcing LNG from Alaska.
The Trump administration has signaled that Japan will need to open its markets, rather than focus solely on investment, to maintain the lower tariff rate. The demand places renewed pressure on Tokyo to pursue deeper structural reforms in how it regulates imports.