'Mission complete': What's in the US-Japan trade deal?

CNA

5 days ago

US President Donald Trump has struck a trade deal with Japan that lowers tariffs on auto imports and spares Tokyo from punishing new levies on other goods, in exchange for a US$550 billion package of US-bound investment and loans.
Trump on Tuesday (Jul 22) hailed the "massive" deal with Japan as "perhaps the largest deal ever made".
"#Mission Complete," Japan's top trade negotiator Ryosei Akazawa wrote on X following a meeting with Trump at the White House.
Trade between the two countries totalled nearly US$230 billion in 2024, with Japan running a trade surplus of nearly US$70 billion. Japan is the fifth-largest US trading partner in goods, US Census Bureau data shows.
Here's what we know about the deal so far.
WHAT'S IN THE DEAL?
Trump, in a post on Truth Social, said Japan would "open" its economy to American autos and rice.
Crucially, Japanese autos, which account for more than a quarter of the country's exports to the US, will see existing tariffs cut to 15 per cent from levies totalling 27.5 per cent previously.
Duties that were due to come into effect on other Japanese goods from Aug 1 will also be cut to 15 per cent from 25 per cent.
"We are the first (country) in the world to reduce tariffs on automobiles and auto parts, with no limits on volume," Japanese Prime Minister Shigeru Ishiba told reporters.
Japan will keep its existing tariffs on imports of US agricultural products, but agreed to import more rice from the US within the existing tariff-free quota.
Steel and aluminium, subject to a separate 50 per cent tariff, were not included in the deal, said Japan's Akazawa.
The trade deal also does not cover spending on defence - something Trump had pressed for.
The US$550 billion of investment into the US is part of a new Japan Investment America Initiative. It is aimed at boosting investment in economic security sectors including semiconductors, pharmaceuticals, steel, shipbuilding, critical minerals, energy, autos and AI technologies.
The sum was the upper limit of loan investments and guarantees that Japanese government state banks and agencies would make available to promote Japanese corporate investment in the US.
According to Akazawa, the agreement follows the idea of "investment over tariffs" proposed to Trump by Ishiba at their meeting in February.
WHAT WERE THE STICKING POINTS?
A contentious point in trade negotiations had been US rice exports to Japan. Trump had previously threatened tariffs on the country over what he called Japan's reluctance to accept rice exports.
On Wednesday, a consensus was finally reached, with Japan agreeing to import more rice from the US – but within the tariff-free quota.
Under a World Trade Organization (WTO) "minimum access" framework introduced in 1995, Japan imports about 770,000 metric tons of rice tariff-free every year. Last fiscal year, the US accounted for 45 per cent of the total.
Ishiba said Japan would import more US grain within this framework.
In agreeing to the deal with the US, Ishiba stressed Tokyo's success in protecting the agricultural sector.
'We made absolutely no sacrifice in the agricultural sector," Ishiba told reporters.
Rice imports are a sensitive issue in Japan, and Ishiba's government - which lost its upper house majority in elections on Sunday - had previously ruled out any concessions.
HOW HAVE MARKETS REACTED?
Tokyo stocks surged to a one-year high on news that a trade deal had been reached. The Nikkei jumped nearly 4 per cent, led by stocks in automakers with Toyota up more than 14 per cent and Honda nearly 11 per cent.
Even with tariffs, the US remains by far the most important market for many Japanese automakers. At Toyota and Hyundai alone, North America accounts for at least 40 per cent of the revenue, filings show. The US is also Toyota's biggest market in terms of vehicles.
Besides Japan, the auto industry is also a crucial sector for South Korea. The sector in both countries provides major exports, millions of manufacturing jobs and is a deep source of national pride.
Japan's trade deal also stoked optimism in South Korea on hopes Seoul would clinch a similar deal. Shares of South Korean automakers gained, with both Hyundai Motor and Kia rising more than 7 per cent.
IMPACT OF THE TRADE DEAL?
Analysts were cautiously optimistic about the impact of the trade deal.
Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that he expects the Japanese economy to avoid recession with the new 15 per cent tariff rate.
But Hinrich Foundation's head of trade policy Deborah Elms noted that while the reduced levy is better than the earlier threatened 25 per cent duty, it is still a "significant escalation" in tariffs overall compared to US tariffs of about 2 per cent on Japan heading into April.
She also cautioned that while Japan's lower tariff rate would give it a competitive advantage compared to other foreign producers of automobiles shipped to the US, the levy on autos is not the only challenge for Japan.
'Many of the vehicles that Japan manufactures for the United States market are made in the US - and so what matters to them is also auto parts tariffs, and crucially, things like metals, so steel, aluminium and all of the derivatives,' Elms told CNA's Asia First.
Steel and aluminium exports to the US are still subject to 50 per cent tariffs.
Still, Jared Mondschein, director of research at the United States Studies Centre noted that Japan's auto relationship with the US is "huge and should not be underestimated".
'This is a sensitive point for Japan, and this could very well be a huge opportunity for them to sort of provide some balance and stability to a pretty unwieldy economic relationship with the United States,' he told CNA's Asia Now, though noting it was still too early to tell the impact of lowered tariffs with details still forthcoming.
WHAT'S NEXT?
So far, the US has also announced framework agreements with the UK, Vietnam, Indonesia and paused a tit-for-tat battle with China.
Countries that have yet to strike a deal with the US will be looking to Japan's trade deal as a potential example before the Aug 1 deadline.
Seoul, for example, is taking a close look, according to the South Korean industry minister. The country heads into high-level talks with the US on Friday.