Trump strikes trade deal with Japan, calls It ‘A big win’

In a significant announcement that has reverberated across global markets, President Donald Trump declared on Tuesday that the United States has finalized a “massive” trade agreement with Japan, labeling it potentially “the largest deal in history.” This landmark accord, which includes a substantial Japanese investment in the US economy and a reduction in American tariffs on Japanese goods, arrives amidst a tumultuous period for Japanese Prime Minister Shigeru Ishiba, who is facing mounting pressure to resign following his ruling party’s recent electoral losses.

“I just signed the largest trade deal in history, I think maybe the largest deal in history with Japan,” a triumphant Trump touted at a White House event. He underscored the collaborative effort, adding, “They had their top people here, and we worked on it long and hard. And it’s a great deal for everybody. I always say it has to be great for everybody. It’s a great deal.”

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Under the terms of the agreement, Japan has pledged an astounding $550 billion (£407bn) in investments in the United States. In a key concession for Japan, US tariffs on vehicles and parts will be lowered to 15%. This figure represents a significant reduction from the 25% punitive tariff that President Trump had explicitly threatened to impose on Japanese exports if a new trade deal wasn’t struck before the crucial August 1 deadline. This looming threat had injected considerable urgency into the negotiations, which had seen previous tariff plans, including a temporary 10% levy between April and July, paused for 90 days following global market instability to facilitate talks.

Japanese Prime Minister Shigeru Ishiba, despite navigating a challenging political landscape at home, publicly acknowledged the agreement on Wednesday. He highlighted a crucial element from Japan’s perspective:

“We were the first in the world to reduce tariffs on cars and auto parts without any quantity restrictions,” Ishiba confirmed. He further emphasized that the 15% tariff represented “the lowest figure to date among countries with trade surpluses with the US.”

However, Ishiba also clarified a point that may displease some American proponents of “reciprocal” tariffs: “The agreement does not include any reduction of tariffs on the Japanese side.” This contrasts with the situation for UK-made cars entering the US, which are subject to a lower 10% tariff, though limited by a 100,000 vehicle quota. Japan’s vital automotive sector, which alone accounts for nearly 3% of its economy and saw a staggering $410 billion (£300bn) in shipments to the US in 2019, stands to be significantly impacted by this new tariff rate.

While Japanese officials expressed satisfaction, the sentiment was not universally shared among American automotive manufacturers. US carmakers voiced disappointment, arguing that the deal creates an uneven playing field by reducing tariffs on imports from Japan while maintaining a higher 25% tax on vehicles and parts originating from their own plants and suppliers in Canada and Mexico.

Matt Blunt, president of the American Automotive Policy Council, a prominent group representing industry titans like Ford, General Motors, and Stellantis, did not mince words, calling the Japan agreement “a bad deal.”

President Trump elaborated on the deal’s broader scope via social media, stating that Japan would open its economy to a range of American goods:

“Japan will open their Country to Trade including Cars and Trucks, Rice and certain other Agricultural Products, and other things. Japan will pay Reciprocal Tariffs to the United States of 15%,” Trump posted, signaling a reciprocal market access component.

For Japan, the agreement to bring its main tariff rate down to 15% is seen as its “best compromise at this stage,” according to Shigeto Nagai from research firm Oxford Economics. Nagai also underscored the substantial economic stimulus expected from the Japanese investment:

“The planned investment in the US by Japan included in the announcement ‘will be a huge boost to restore the US, fitting in with Trump’s story of reviving US manufacturing with more jobs,'” Nagai added, aligning with the Trump administration’s focus on bolstering American manufacturing and job creation.

The news was met with an immediate positive reaction in Japanese financial markets. Japan’s benchmark share index, the Nikkei 225, surged by more than 3% on Wednesday in Tokyo, with shares in major motor industry giants including Toyota, Nissan, and Honda experiencing robust gains.

The timing of this significant trade agreement is particularly noteworthy given the intense political pressure currently facing Japanese Prime Minister Shigeru Ishiba. His Liberal Democratic Party (LDP) suffered a major setback over the weekend, losing its majority in the country’s upper house in recent elections. This loss follows a similar defeat last year when the LDP also lost its majority in Japan’s more powerful lower house. The cumulative electoral disappointments have intensified calls for Ishiba to step down, even as his government successfully navigated the high-stakes trade negotiations with Washington.

In addition to the Japan deal, the US also announced new trade agreements with the Philippines and Indonesia. US imports from these two Southeast Asian nations will be taxed at 19% upon reaching American shores. According to the White House, Indonesia will remove approximately 99% of its tariff barriers on US goods, while the Philippines deal includes the removal of tariffs on US car imports.

As the world’s fourth-largest economy, Japan’s trade relationships carry considerable global influence. This new agreement with the US represents a pivotal development, shaping not only bilateral trade flows but also potentially influencing regional trade dynamics at a time when both nations are navigating complex domestic and international challenges. The BBC has reached out to both the White House and Japan’s embassy in Washington for further details regarding the specifics of the trade agreement.