US-Japan Trade Deal Strengthens Trans-Pacific Ties

In the week preceding the signing of the trade agreement between the EU and the US, Japan and the US concluded one of the most significant trade agreements in the history of both countries. Similar to the US-EU agreement, the US-Japan trade agreement was reached after several months of negotiations, following the initial tariffs imposed by the US on imported goods from the world's fourth-largest economy.

Scope and Key Provisions of the Agreement

The US-Japan trade agreement covers some of the most critical industries, including agriculture and food, energy, manufacturing, aerospace, automotive, and industrial goods. For example, Japan will increase imports of US rice by 75%, with a significant expansion of import quotas, and purchase US goods, such as corn, soybeans, fertilizer, bioethanol, and sustainable aviation fuel, for an amount of USD 8 billion.

One of the industries most impacted by this agreement is the automotive industry. US importers of Japanese cars, such as Toyota, Honda, or Nissan, will no longer have to pay a 27.5% import tax, which will have a significant impact on Japanese carmakers. On the other hand, for the first time, Japan will recognize and approve US automotive standards, allowing American-made vehicles to be sold more easily without requiring costly modifications to meet Japanese regulations.

Generally, Japanese goods imported to the US are subject to a baseline 15% tariff rate. As part of the agreement, Japan has pledged to invest USD 550 billion in the US economy, enabling Japanese companies to establish resilient supply chains in key sectors such as pharmaceuticals and semiconductors. Consequently, the US will retain 90% of the profits from this investment, which is expected to have a significant positive impact on its economy and industrial revival.

Conclusion

The US-Japan trade agreement is the second-largest after the EU-US trade agreement, representing a turning point in bilateral economic relations. It not only addresses long-standing trade imbalances but also reshapes the future of trans-Pacific commerce. Japan's commitment to significantly boost imports of the US agricultural products and invest in strategic sectors of the US economy underscores the mutual intent to build resilient and diversified supply chains. 

Source: The White House, VATabout