U.S. trade agreement with Japan includes $550 billion in unanswered questions

Axios

2 days ago

One key element of the U.S.-Japan trade pact raises more questions than answers about the future of the two nations' economic relationship.
The big picture: A reported $550 billion investment commitment from Japan would reflect a massive surge in the nation's financial exposure to the United States. But no one in either the Japanese or U.S. government has articulated key details about how it would really work.
In U.S. officials' description of the commitments, President Trump would have the discretion to direct the investment funds and the U.S. would receive 90% of the profits.
It's unclear what legal entities — on either the Japanese or U.S. side — would be involved, or what would be in it for Japanese companies if they have neither control over the investments nor a financial return.
Catch up quick: A White House fact sheet said Trump will direct the funds toward revitalization of the U.S. industrial base, including energy infrastructure, semiconductor manufacturing, critical minerals, pharmaceuticals and shipbuilding.
By the numbers: It's worth emphasizing just how big $550 billion is — nearly 14% of Japan's 2024 GDP.
Japan is already the single-largest source of foreign direct investment in the United States, with a cumulative capital of $754 billion deployed as of last year. It's been rising rapidly, too — nearly doubling over the last decade.
Reality check: That has been driven by Japanese companies voluntarily making investments on which they expect to earn a handsome return — think of the Toyota manufacturing plant in Georgetown, Kentucky, which reflects about $10 billion in investment as of early last year.
But those kinds of projects don't spin up overnight. The initial groundbreaking on the Toyota plant was in 1986.
Japanese FDI in the U.S. increased by about $54 billion in 2024, a huge 7.7% surge, but the contemplated investment fund is more than 10 times that size.
Similarly, Japan is the biggest owner of U.S. Treasury securities — with $1.1 trillion as of May. But those purchases are directed by the Japanese government to manage the nation's own currency and reserves, not at the behest of the U.S. president.
The Bank of Japan buys U.S. bonds with the full expectation of interest earnings and principal being paid back.
What they're saying: "They came to us with the idea of a Japan-U.S. partnership, where they are going to provide equity, credit guarantees and funding for major projects in the U.S.," Treasury Secretary Scott Bessent said Wednesday on Bloomberg TV.
A White House official tells Axios that "the shape and timeframe here are still TBD, but it's effectively an investment vehicle whose cash the Japanese will put up, and whose investments will be directed by the President into the sectors we have prioritized."
The other side: "The vague promises about Japan investing $550 billion in the U.S. and Americans receiving '90% of the profits,' are the kind of fantastical claims better suited for a campaign rally than a serious trade announcement," wrote Veronique de Rugy, a senior research fellow at the Mercatus Center, in a note.