The United States and Japan Reach New Trade Deal

What Happened?

After months of negotiations between the U.S. and Japan, Japan's Prime Minister Shigeru Ishiba and U.S. President Donald Trump announced a new trade agreement between their two countries. Under the deal, Japan will invest $550 billion in the U.S., Trump said in his post on Truth Social, though he did not provide any further details. 

President Trump called the new deal ‘the largest trade deal in history.’ Prime Minister Ishiba said the deal ‘will lead to Japan and the U.S. working together to create jobs, produce high-quality goods, and contribute to fulfilling various roles in the world going forward.’

Why it Matters

The U.S. has the world’s largest economy and Japan has the world’s fourth largest economy, so the new trade deal will certainly be felt on a global level. The new trade agreement arrived just ahead of the August 1st deadline, when a new round of tariffs would have kicked in absent a deal.

Crucially for Japan, under the new agreement tariffs on cars will be lowered from 25% to 15% which will help make Japanese automobiles more competitive in American markets. In return for reduced tariffs, Japan has proposed investing $550 billion in the U.S. to enable Japanese firms ‘to build resilient supply chains in key sectors like pharmaceuticals and semiconductors,’ Japan’s Prime Minister said.

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Strong ties between the U.S. and Japan reflect a long growing partnership, the origins of which can be traced to the end of World War II. Despite being bitter enemies during the Second World War, after Japan surrendered to the U.S. the prevailing mindset in Japan was to think of the American way of governance and business as superior to their own because the U.S. had triumphed. Japan set out not only to learn lessons from the U.S. but to apply them.

At the same time, after the Japanese surrender in 1945, the U.S. set out not to conquer Japan but to transform it into something more closely resembling America. While America wanted to transform Japan, Japan itself was eager for change. Those two factors taken together formed the basis of shared social, economic, and political values which have endured to the present day.

Currently trade between the U.S. and Japan is valued at about $300 billion annually, which could grow thanks to the new trade deal. In addition, Japan is a crucial ally for the United States in the Pacific militarily, because Japan is home to several U.S. military installations while Japan itself is a strategic bulwark against China.

How it Affects You

Whether the new Japan-U.S. trade deal will increase jobs for American workers remains to be seen, but if Japan follows through on its pledges for new investments, that could certainly lead to job growth in places that receive Japanese investments.