The US-Japan Trade Deal Provides Both Certainty and Clarification

President Donald Trump announced last week that the U.S. has successfully negotiated a new trade deal with Japan, one of our greatest trading partners and allies.  

This U.S.-Japan trade agreement promises to reshape the two countries’ economic relationship. It set the U.S. tariff on most Japanese imports at 15%, lower than the 25% that Trump initially proposed (although the steel tariff remains at 50%). The trade deal also paves the way for an increase in U.S. exports to Japan, from agricultural products to Boeing airplanes.

Additionally, Japan has committed to investing $550 billion in the U.S., with 90% of the generated profits remaining within the U.S. Trump cited a potential investment project as an example: a joint venture between the two governments for liquefied natural gas exportation in Alaska. 

Both countries view the trade deal as a win-win. Trump touts this agreement as “the largest trade deal in history,” marking a significant advancement in reshaping international trade dynamics. 

Meanwhile, Japanese Prime Minister Shigeru Ishiba has praised the 15% tariff as the best reciprocal rate achieved by a trade-surplus country, highlighting it as a substantial reduction from the 25% that Trump had previously proposed. Given that the automobile manufacturing industry is crucial to the Japanese economy and the U.S. is its most important market, this latest tariff reduction is expected to save at least $10 billion in tax burdens for leading Japanese carmakers, ultimately boosting their profitability. The day after the deal was announced, Japan’s Nikkei Stock Average rose by 3.5%, and shares of Toyota Motor, a major Japanese automobile manufacturer, increased by more than 10%, indicating a positive outlook for the Japanese economy. 

These reactions from both countries demonstrate that trade can yield mutually beneficial outcomes rather than being a zero-sum game. More important, the U.S.-Japan trade deal alleviates the uncertainty that has clouded their bilateral relationship in recent months. 

Since the start of Trump’s second term, his administration has strategically shifted its security posture in the Indo-Pacific region, focusing on strengthening alliances to effectively counter China’s aggression in the region. Japan, which hosts the largest overseas deployment of U.S. troops and serves as a critical base for squadrons of U.S. fighter jets and the only forward-deployed aircraft carrier strike group, plays a vital role in this strategy. During his April visit to Asia, Defense Secretary Pete Hegseth hailed Japan as an “indispensable partner,” upgrading the U.S. military command in Japan to a new “war-fighting headquarters” status. 

Nevertheless, Trump’s worries regarding Japan’s ongoing trade surplus with the U.S.—evident in a trade deficit of nearly $63 billion in 2024—have introduced friction between the two allies. Disagreements over tariffs continue to strain their relationship, creating uncertainty at a crucial moment when the Chinese Communist Party is ramping up its military capabilities and aggressively expanding its geopolitical reach by employing “gray zone” tactics, coercive activities “beyond regular diplomatic and economic activities and below the use of kinetic military force.”  

For instance, the CCP has escalated its aggression toward Taiwan. In addition to almost daily incursions of warplanes crossing the central line in the Taiwan Strait—an unofficial maritime border between mainland China and Taiwan—the Chinese military has conducted “blockade-style” military drills around the island, aiming to instill fear in Taiwanese people. However, the CCP’s ambitions are not confined to Taiwan alone. Earlier this month, Japan’s Coast Guard reported spotting two heavily-armed Chinese coast guard ships near the disputed Senkaku Islands, which Japan has long considered its territorial waters. This area is covered by the Japan-U.S. Security Treaty in case of a Chinese attack. 

These gray zone tactics employed by China pose grave threats to regional stability, underscoring the urgent need for a united stance between the U.S. and Japan. A new U.S.-Japan trade deal not only addresses economic concerns but also strengthens their alliance significantly. Now both countries can concentrate on enhancing military and security collaboration, which is crucial for effectively countering China’s expanding geopolitical ambitions in Asia and beyond. 

Moreover, the U.S.-Japan trade deal provides a template for other countries, inspiring them to pursue similar trade agreements with the United States. In the aftermath of Trump’s dramatic announcement of substantial tariff increases on “Liberation Day” in April, many nations remain unclear about U.S. trade expectations. The U.S. and Japan trade agreement provides needed clarification and will encourage other nations to follow. 

In fact, just after the U.S.-Japan deal was unveiled, reports surfaced that the European Union was in negotiations for a similar agreement with the U.S., which includes the acceptance of 15% tariffs on most of its exports. Trump and the EU announced Sunday an agreement has been reached. With Aug. 1 drawing near—the date Trump has set for imposing tariffs of up to 50% on a variety of countries—the urgency for other nations to emulate Japan’s approach and seek comparable trade deals with the United States has never been more pressing.  

Among the nations yet to establish a trade agreement, China is particularly significant, especially given the enormous size of the U.S. trade deficit and many other nontrade related issues with China. China also has taken the strongest retaliatory response to Trump’s tariffs. Recently, the two countries managed to reach a temporary trade truce, signaling a potential path forward.

This week, U.S. Treasury Secretary Scott Bessent will engage with the Chinese trade negotiation team in Stockholm for crucial discussions. The U.S.-Japan trade agreement, along with any other trade deals the U.S. finalizes beforehand, will enhance the Trump administration’s bargaining power. This sets the stage for the world to embrace a new U.S.-led international trade system that offers fairness and certainty for global markets. 

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