US President Donald Trump has announced what he calls a “massive” new trade agreement with Japan, marking a significant shift in trade relations between the two economic powerhouses.
Speaking at a White House event on Tuesday evening, Trump hailed the deal as the “largest trade deal in history with Japan,” saying it was the result of extensive negotiations between top officials from both nations. The agreement includes a commitment from Japan to invest $550 billion in the US, while American tariffs on Japanese goods—particularly vehicles and auto parts—will be reduced to 15%, down from a previously threatened 25%.
“They had their top people here, and we worked on it long and hard,” Trump said. “It’s a great deal for everybody.”
Japan’s Prime Minister Shigeru Ishiba also welcomed the agreement, calling the revised tariff rate “the lowest figure to date among countries with trade surpluses with the US.” Ishiba highlighted that a quarter of Japan’s exports to the US come from the automotive sector, a key pillar of the Japanese economy. In 2019, Japanese automotive exports to the US were valued at $410 billion, according to the US International Trade Administration.
The deal will not include any tariff reductions on the Japanese side, and Japan will not impose quantity restrictions on US car exports. Ishiba noted, “We were the first in the world to reduce tariffs on cars and auto parts without any quantity restrictions.”
Despite the celebratory tone from both governments, the agreement has drawn sharp criticism from US auto manufacturers. Matt Blunt, president of the American Automotive Policy Council—representing Ford, General Motors, and Stellantis—labelled the deal “a bad deal,” pointing out that it disadvantages US manufacturers operating in Canada and Mexico, where tariffs remain at 25%.
Analysts say the $550 billion investment pledge aligns closely with Trump’s narrative of revitalising US manufacturing and bringing jobs back to American soil. “This will be a huge boost to restore the US, fitting in with Trump’s story of reviving US manufacturing,” said Shigeto Nagai of Oxford Economics.
Trump had earlier threatened a 25% tariff on all Japanese exports if a new agreement was not reached by 1 August. The threat followed a series of tariff hikes introduced on what he called “Liberation Day” on 2 April, many of which were suspended for 90 days to allow negotiations with trading partners like Japan to proceed.
The announcement also included a separate trade deal with the Philippines, with US imports from the country to be taxed at 19%. This comes amid a broader effort by Washington to reset trade dynamics with several Asian nations.
The news boosted investor confidence in Japan, with the Nikkei 225 jumping more than 3% on Wednesday. Shares in major auto manufacturers such as Toyota, Nissan, and Honda saw strong gains.
Back home, Prime Minister Ishiba is facing mounting political pressure after his Liberal Democratic Party (LDP) lost its majority in Japan’s upper house elections over the weekend, compounding an earlier loss in the more powerful lower house. Analysts suggest the trade deal could offer Ishiba a temporary political win at a turbulent time.
Japan remains the world’s fourth-largest economy behind the US, China, and Germany, and the new agreement signals a strategic attempt by both countries to stabilise their trade relationship amid growing global economic uncertainty.
Melissa Enoch
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