According to Xinhua News Agency, after several rounds of negotiations, Japan and the United States have recently reached a trade agreement. The tariff rate of “reciprocal tariffs” originally imposed on Japan by the United States on August 1 has been reduced from 25% to 15%, and the car tariff rate has also been lowered to 15%. However, the two countries have not yet signed a legally binding written agreement, leading to disagreements over specific details and raising doubts among the public.
On July 29, Kazunori Kawai, the Japanese Minister for Economy, Trade, and Industry, held a press conference to explain that Japan is more inclined to prioritize facilitating President Trump’s signing of an executive order to quickly implement the 15% tariff as opposed to drafting a legally binding bilateral agreement.
“We hope to focus on reducing tariffs first, and then consider whether it is necessary to issue a formal document regarding this agreement,” Kawai stated. He also emphasized that Japan will continue to enjoy the lowest tariff treatment in the US-agreed-upon agreements with other countries, including semiconductors and pharmaceuticals. This means that if a third country and the United States reach a lower tariff agreement for semiconductors and pharmaceuticals, Japan would automatically apply to that lower level.
This week, the EU and the United States reached a framework trade agreement, setting the base tariffs for semiconductors and pharmaceuticals at 15%. Whether Japan will be subject to this rate remains uncertain. On the 22nd local time, Trump announced a trade agreement with Japan on social media.
Based on information released by him and the White House, the United States will reduce its “reciprocal tariffs” and car tariffs against Japan to 15%. In exchange, Japan has committed to providing $550 billion in investment to key American industries and purchasing 100 Boeing aircraft, increasing its purchases of American rice by 75%.
U.S. Treasury Secretary Steven Mnuchin and Japanese Minister of Economic Revitalization Taro Kono are currently in negotiations, despite the significant content of the agreement. However, no joint statement has been released by either side yet, leading to discrepancies in their statements about the negotiation process and adding uncertainties to the prospects of the agreement.
Trump’s policy stance is highly variable. In an interview on the 26th, Kono admitted that if a formal text were drafted, Trump might be repeatedly asked for clarification on details by cabinet members, thereby increasing the risk of changes to the agreement.
“The benefits Japan gains from the agreement are certain, while the portions Japan promises to provide remain somewhat ambiguous,” said a government official. Since the agreement was reached through multiple rounds of negotiations, it would not become complex due to differences in interpretation, making signing a written agreement less favorable for Japan.
On the other hand, although Japan committed to investing $550 billion in U.S.-funded projects under the guidance of the United States, there is disagreement between the two sides on how this arrangement should be interpreted. The U.S. sees this $550 billion as an investment tool, with 90% of the profits going to the U.S., while the Japanese government claims that these funds are invested, financed, and guaranteed by its financial institutions, which are mostly private enterprises. Kono stated that only 1% to 2% of the actual investment amount is actually made.
If the agreement were to be converted into a formal document, it might force Japan to accept the U.S.’s interpretation of its obligations. However, without a document, there is also a risk—the U.S. may not fulfill the verbal agreement in the future.
“Even with a written agreement, the U.S. is now a country that will not hesitate to break the agreement,” said Kenji Ishikawa, a professor at Osaka University who participated in the negotiations for the Japan-U.S. trade agreement in 2019. “There’s no need to spend effort on formalizing Japan’s obligations.”
However, without an agreement, Japan is more likely to face retaliatory actions from the U.S.
On July 23rd, U.S. Treasury Secretary Steven Mnuchin explicitly warned that tariffs would rise again if Japan does not fulfill its agreement terms. “We will evaluate it quarterly and if the President is dissatisfied, the tariffs on automobiles and other goods will be raised to 25%.”
U.S. Commerce Secretary Wilbur Ross went even further, stating plainly, “This is essentially a $550 billion deal by the Japanese government for Trump and the American people to invest in America and its national security according to his instructions.”
After informing the opposition leaders of Japan on the 25th that there was no written agreement with the United States, Prime Minister Shinzo Abe faced a concentrated attack. Yoshihide Suga, a representative of the Liberal Democratic Party, pointed out, “There might be many interpretations without an agreement document.” Yukio Edano, the leader of the National Democratic Party, who had previously given a positive evaluation of the negotiation results, directly stated, “I want to withdraw my previous positive assessment.”
Abe’s position as Prime Minister has been precarious, and he continues to govern on the grounds that implementing the subsequent work of the Japan-U.S. tariff negotiations is necessary. However, without a formal written agreement, there is a high likelihood that Japan and the United States could face another contentious period, presenting unpredictable challenges to the Japanese economy.
The Japanese government issued a monthly report on the 29th warning that the Japanese economy faces downside risks, and U.S. trade policies could disrupt corporate hiring, capital expenditures, and private consumption.