Cracks widen in Japan and US’s interpretation of tariff trade deal
The US will secure only 90 per cent of profits from joint investments with Japan if it takes on a proportional amount of risk and financing, Tokyo said on Friday, as cracks widened in the two allies’ interpretation of their hastily agreed trade deal.
Japanese officials said there was no written agreement with Washington — and no legally binding one would be drawn up — after Trump administration officials claimed Tokyo would back investments in the US from which American taxpayers would reap nine-tenths of the profits.
Japan secured a reduction in reciprocal and automotive tariffs from US President Donald Trump’s threatened level of 25 per cent to 15 per cent in the deal announced this week, but sharply different perceptions of what was agreed have since become apparent.
US commerce secretary Howard Lutnick boasted on Wednesday that Japan would be “the banker” for $550bn worth of investments in US strategic sectors such as semiconductors, shipbuilding and critical minerals, in return for the reduction in tariffs.
“The Japanese will finance the project. We will give it to an operator and the profits will be split 90 per cent to the taxpayers and 10 per cent to the Japanese. They basically bought down their tariff rate by this commitment,” said Lutnick.
But a slideshow issued by Japan’s Cabinet Office on Friday appeared to contradict Lutnick by saying the ratio of profit distribution would be “based on the degree of contribution and risk taken by each party”.
Officials familiar with the US-Japan talks said the deal was pulled together in a slapdash manner during a 70-minute meeting between Japan’s chief negotiator Ryosei Akazawa and Trump on Tuesday.
The deal followed the loss on Sunday of the ruling Liberal Democratic party-led coalition’s majority in Japan’s upper house of parliament, the LDP’s latest in a series of poor electoral showings under the leadership of Prime Minister Shigeru Ishiba.
Japan made some material concessions, such as allowing the import of US cars without additional safety tests and reforming subsidies that favour hydrogen fuel cell vehicles over electric cars.
While it agreed to purchase more US rice, the import quota of 770,000 tonnes was left untouched and Akazawa has been clear that Japan will provide “up to” $550bn in investment, financing and loan guarantees, rather than framing the number as a target or commitment.
“There is nothing inspiring about the deal,” said Mireya Solís, senior fellow at Brookings Institution. “Both sides made promises that we can’t be sure will be kept . . . there are no guarantees on what the actual level of investments from Japan will be.”
Some of the $550bn of investments could involve the US government owning the assets and undertaking large capital investments with funding backed by both nations and affiliated institutions, according to Japanese and US officials. The assets would then be leased to the private sector for operating.
One US official said details of the scheme were still being worked out.
Speaking before the trade deal was announced, Tadashi Maeda, governor of the Japan Bank for International Cooperation, said support had been growing among Japanese officials for a government-owned, company-operated approach to investment in the US. This would be a “very good” way of reducing the financial burden on the private sector, said Maeda.
Political analysts said that on balance Japan appeared to have walked away with a good deal at little cost, setting an example that could become a model for other large exporters such as Germany and South Korea.
“Japan has been playing a card game with Trump and the reality is Trump has a better hand with more jokers that he can play,” said David Boling, Asian trade director at Eurasia Group. “They ended the card game in a good position.”
