Japan-U.S. tariff negotiations enter uncharted territory
Some analysts opine that Japan's strategy is to drag out the talks as long as possible, and they argue that it should continue to do so. But after U.S. President Donald Trump lashed out at Japan earlier this week, and a surprise trade deal was reached between the United States and Vietnam, the question becomes: How long can Japan hold its ground?
In the 11 weeks since negotiations started, both sides have maintained their hard-line stances. While Japan insists that all tariffs should be included in a single package deal, the U.S. is demanding big concessions in exchange for a lowering of the higher "reciprocal" rate, set at 24% for Japan.
The U.S. president personally slammed Japan for three days running this week, saying that it's "spoiled" and complaining about its unwillingness to accept U.S. vehicles and rice. On Tuesday, he went even further by issuing a direct threat to end the talks and simply take the tariff rate on Japanese imports to as high as 35%.
'We're going to start sending letters out to various countries starting tomorrow,' Trump told reporters at Joint Base Andrews in Maryland on Thursday night. He added that the letters will be sent to a dozen countries every day until the July 9 deadline, with the rates ranging from 10% to as high as 70%.
The new tariff rates will be effective on Aug. 1, Trump said.
Aside from a pressing deadline and direct threats from the president, a fresh deal between the U.S. and Vietnam also signaled that any deal Japan will get is likely a bad deal.
In a Truth Social post on Wednesday, Trump said a 20% tariff will be imposed on Vietnamese exports to the U.S., lower than the original 46% reciprocal tariff announced on April 4. Goods transshipped to the U.S. via Vietnam will be subject to a 40% levy.
American exports to Vietnam will be allowed to enter the country duty-free.
Some Japanese media have described the Vietnam deal as an 'unequal treaty.' A diplomat from an Asian country posted in Tokyo, who spoke on condition of anonymity, said they were 'having a hard time trying to wrap my head around why the Vietnamese had agreed.'
'In Vietnam's case, sure, the 20% tariff is still tough. But without a deal, they could've been facing 40% or even higher. So 20% is at least tolerable,' said Akihiko Yasui, research director at Mizuho Research and Technologies, in an interview on Thursday.
'But for Japan, the point of negotiation isn't even the additional tariffs. That's not where the real impact is for us. And that makes things tougher,' he went on. 'Japan doesn't have much to concede, and even what we could get in return doesn't strike at the core of our interests.'
On Friday, Cambodia announced it had agreed to a draft statement with the U.S., but without giving further details. The country faced a 49% reciprocal tariff rate, the highest among its southeast Asian neighbors.
In a CNBC interview on Thursday, U.S. Treasury Secretary Scott Bessent — who had previously suggested another extension might be possible as long as countries negotiate in good faith — warned countries to get prepared for punitive measures if no deal is reached next week.
'We're going to do what the president wants, and he'll be the one to determine whether they're negotiating in good faith,' Bessent said. 'Of course, everyone waits until the last minute. They think that they can get the best deal.
"These countries should be careful because their rate could boomerang back to their April 2 rate.'
He did acknowledge that domestic politics is constraining what concessions Japan is willing to make and signaled that there might still be room for future talks.
'Japan are great allies, and they are in a tough spot right now. They have an Upper House election on July 20, which I think gives them a lot of domestic constraints in terms of doing a deal,' Bessent said. 'So we'll see where the Japanese deal goes.'
So far, tariffs have not taken prices significantly higher in the U.S., with key inflation indicators running in the 2% range and at or near multiyear lows. The latest data show 147,000 jobs were added in June, indicating the U.S. economy is stable and running steadily.
While some economists anticipate the real impact from tariffs being reflected from June onward, the current numbers suggest that Washington is not under pressure to roll back on tariffs due to domestic considerations.
Ryosei Akazawa, Japan's chief tariff negotiator, is reportedly traveling to Washington again for the eighth round of negotiations as soon as this weekend. But no concrete schedule has been made so far.
Even after countries strike deals, more will need to be done, Yasui warned.
'There's still a lot of work to hammer out the details. So even if there's an agreement now, the process of negotiating the finer points will go on,' he said.
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