President Donald Trump and Japanese Prime Minister Ryosei Akazawa reached a broad trade deal between the two countries earlier this week, in a major development in Trump’s ongoing trade war.
The move will reduce U.S. trade concerns about Japan and ease Japanese concerns about U.S. tariffs on certainty commodities, such as automobiles. Although the deal is done, there are still significant questions about the specifics of certain elements of the deal, such as Japanese investment into the U.S. and more.
About the deal
The deal was reached between President Trump and Prime Minister Akazawa after weeks of back and forth between the U.S. and Japan, as well as long discussions which included U.S. Treasury Secretary Scott Bessent, U.S. Commerce Secretary Howard Lutnick, and U.S. Secretary of State Marco Rubio. Prior to the deal, the U.S. had proposed punishing tariffs on Japan, particularly on automobiles.
The deal was made irresistible to President Trump with the inclusion of a $400 billion Japanese investment fund, controllable by Trump himself. At the end of the negotiations, Trump announced a $550 billion Japanese investment fund, and the Japanese government agreed. As part of the deal, the U.S. will share in most of the profits of the fund’s investments, with a 90% cut to America.
In return, Japan will see a reprieve from the punishing level of tariffs initially proposed by Trump and the U.S. government. That will greatly help Japan’s large automobile industry, as well as other areas the U.S. had focused on, including agricultural exports.
Questions remaining about the deal
It remains to be seen where the U.S. government will decide to invest the Japanese government funds. Trump has mentioned infrastructure as one potential area, particularly shipbuilding, semiconductor infrastructure, and other specialized manufacturing, such as pharmaceuticals.
Additionally, it is not yet clear that how the funds will be administered. Trump could act unilaterally to administer certain funds. However, the U.S. Department of Commerce will ultimately be in charge of administering the funds. Details of administration and management of the fund are still being worked out, according to U.S. officials.
Profits will go towards U.S. government debt.
With the U.S. getting 90% of the profits generated by the investment fund, the Trump Administration hopes to pay down the U.S.’s large national debt which is on track to exceed $40 trillion in the coming years.
Last month, the U.S. government ran a monthly surplus for the first time in nearly two decades, after tariff revenue led to larger-than-expected inflows, when compared to U.S. Treasury outflows.
