Understanding the US-Japan Trade Deal

FAQs: THE NEW US–JAPAN TRADE DEAL

1. What is the new trade deal between the US and Japan?

The United States and Japan have signed a major trade agreement under which Japan will invest $550 billion in US-bound projects and loans. In return, Japan will avoid new US tariffs and expand market access for American goods.

2. What tariff changes have been made?

The US has agreed to reduce its 27.5% tariff on Japanese auto exports to 15%. Meanwhile, Japan will lower tariffs on US goods such as rice, certain agricultural products, and pharmaceuticals — though some existing tariffs on domestic farm goods will remain.

3. How does the deal benefit American companies?

The agreement provides broader access for US cars, auto parts, rice, medicines, semiconductors, and energy products in Japan. Sectors like pharma, technology, defence, and aviation are expected to gain significantly from increased exports and joint ventures.

4. What defence commitments did Japan make?

Japan will purchase 100 Boeing aircraft and increase its annual defence spending from $14 billion to $17 billion. This aligns with Japan’s growing role in regional security and its alliance with the US.

5. What is Japan’s investment commitment to the US?

Japan has pledged $550 billion in investments through loans, infrastructure, and technology projects. These will focus on semiconductors, artificial intelligence, steel, pharmaceuticals, and clean energy, supported by Japanese government-backed institutions.

6. What is the impact on trade balance?

The deal is designed to narrow the US trade deficit with Japan. In 2024, Japan exported $168.5 billion worth of goods to the US, while American exports to Japan totalled $97.4 billion. Increased market access for US industries may help balance this gap.

7. How did markets respond to the deal?

Japanese auto and manufacturing stocks surged following the announcement. Toyota rose 14.2%, Honda 11.1%, and Nissan 13%. The Nikkei Index also climbed, reflecting strong investor confidence in the agreement.

8. What are Japanese companies saying about this?

Japanese businesses have largely welcome the deal, viewing it as a positive step that prevents new US tariffs on auto exports. The agreement ensures continued unrestricted auto trade between the two nations, boosting industrial stability.

9. Are there other trade deals in progress?

The US administration is also negotiating new trade agreements with Britain, Vietnam, Indonesia, and the European Union. However, talks with China remain on hold amid ongoing geopolitical tensions.

10. What happens to semiconductor and medicine tariffs?

Tariffs on semiconductors and medicines will be addressed in subsequent negotiations. Japan has agreed to reduce subsidies on certain US imports and increase domestic procurement to promote balanced trade growth.