U.S. and Japan strike $550 billion trade deal, slashing auto tariffs ahead of August deadline

The United States and Japan reached a major trade deal to cut auto tariffs to 15% and unlock $550 billion in Japanese investment, averting new levies ahead of the 1 August deadline set by President Donald Trump

The US and Japan have finalised a sweeping trade agreement that slashes tariffs and commits Tokyo to $550 billion in US-bound investment and loans, offering significant relief to Japan’s auto industry ahead of looming tariff hikes.

President Donald Trump hailed it as “the largest TRADE DEAL in history with Japan,” writing on Truth Social that it reflects the strong relationship between the two allies.

The agreement reduces existing 25% auto tariffs to 15% and cancels a new round of levies on Japanese goods that were due to take effect on 1 August.

Autos represent more than 25% of Japan’s exports to the U.S. and the announcement sparked a surge in Japanese markets, with the Nikkei index rising 2.6% and carmaker stocks gaining sharply. Toyota shares jumped more than 11%, while Honda and Nissan rose more than 8%.

In addition to tariff reductions, the agreement includes a pledge by Japanese government-affiliated institutions to channel up to $550 billion into U.S. supply chains, particularly in sectors such as pharmaceuticals and semiconductors.

Prime Minister Shigeru Ishiba, facing pressure after losing his upper house majority, described the new tariff rate as “the lowest figure among countries that have a trade surplus with the U.S.”

Japan also agreed to increase purchases of American agricultural products, such as rice, though Ishiba insisted the deal would “not sacrifice Japanese agriculture.”

However, U.S. automakers voiced concern. The American Automotive Policy Council criticised the deal for favouring Japanese imports with low US content over North American-built vehicles, which still face 25% tariffs.

"Mission Complete," Japan’s lead negotiator Ryosei Akazawa posted on X after meeting Trump at the White House, confirming the deal does not cover steel or aluminium tariffs, nor defence spending commitments.

Two-way trade between the U.S. and Japan reached nearly $230 billion in 2024, with Japan running a $70 billion surplus. Japan remains the largest foreign investor in the U.S. with around $2 trillion in assets and $1.2 trillion in direct investment by the end of last year, according to the Bank of Japan.

Speaking at the White House, Trump said Japan was also ready to join a joint venture to support an Alaskan LNG pipeline, a project long backed by his administration.

With the 1 August deadline approaching, the Trump administration is racing to conclude deals. Framework agreements with the UK, Vietnam, and Indonesia are already in place, while negotiations with the European Union are due to continue in Washington this week.

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