Unraveling the Mysteries of the US-Japan Trade Deal: Autos, Boeing, and the $550 Billion Fund

The US-Japan trade deal has investors celebrating, but questions remain. The agreement promises to sell "cars, SUVs and trucks" to Japan, but it's unclear who will buy them. The deal also includes a $550 billion investment fund financed by Tokyo, with 90% of profits going to the US. The fund's structure and purpose are unknown, and its impact on US industries is uncertain. The deal's success will depend on addressing these mysteries.

The recently announced US-Japan trade deal has sparked celebrations among investors, yet several key aspects remain shrouded in uncertainty. The agreement promises to open up the Japanese market for American automobiles, but it is unclear who will be the primary buyers. Additionally, the $550 billion investment fund financed by Tokyo, with 90% of profits earmarked for the US, has raised questions about its structure, purpose, and potential impact on American industries.

The deal, signed by US Treasury Secretary Scott Bessent and Japan’s Minister of State for Economic and Fiscal Policy Ryosei Akazawa, includes several significant components. One of the most prominent is the $550 billion investment fund, which is intended to "rebuild and expand core American industries." This fund, proposed by Secretary of Commerce Howard Lutnick, will use a combination of equity, credit guarantees, and funding from Japanese public finance institutions such as Nippon Export and Investment Insurance (NEXI) and Japan Bank for International Cooperation (JBIC). The specifics of how this fund will be allocated and its timeline remain unclear, but it is expected to focus on sectors such as energy, semiconductors, critical minerals, pharmaceuticals, and shipbuilding [1].

Another key element of the trade deal is the reduction of tariff rates. The US has agreed to lower reciprocal tariffs on Japan from 25% to 15%, a significant cut given Japan's exports to the US in 2024. Additionally, the deal includes a safety clause on forthcoming Section 232 sectoral tariffs, ensuring that Japan will pay the lowest possible rate, even if another nation negotiates a better deal with the US. This clause is particularly important for Japanese automakers, which depend heavily on exports [1].

Market access and purchase agreements also play a significant role in the deal. The Trump administration has prioritized giving American goods greater access to the Japanese market, and Japan has agreed to waive additional regulatory burdens on cars that have gone through American safety certification. The deal also includes an agreement to increase Japanese imports of American rice by 75% and to purchase $8 billion of American agricultural goods, 100 Boeing aircraft, and to increase overall expenditures from $14 billion to $17 billion [1].

However, the deal's success will depend on addressing several mysteries. The primary question is who will buy the promised "cars, SUVs, and trucks" in Japan. Additionally, the structure and purpose of the $550 billion investment fund remain unclear, as do its potential impacts on US industries. While the fund is intended to support American industries, its specific allocation and timeline are still unknown. Furthermore, the Alaskan LNG project, a major priority for the Trump administration, has yet to gain significant traction with Japanese firms, who have so far been reluctant to invest due to a preference for Gulf of America-based projects [1].

In conclusion, the US-Japan trade deal holds significant potential for both countries, but several key aspects remain uncertain. The success of the deal will depend on addressing these mysteries and ensuring that the promised benefits are realized.

References:
[1] https://www.hudson.org/trade/largest-trade-deal-history-implications-us-japan-trade-deal-william-chou