The trade deal between the US and Japan has been reached just days before the latest tariff deadline imposed by Donald Trump. According to the terms of the agreement, instead of facing a 24% tax upon entry into the US, Japanese goods will now be subjected to a 15% tariff.
Unlike the US-UK deal, there are no restrictions on the number of Japanese cars that can benefit from the reduced tariff. The tariff on cars and car parts has been reduced from 25% to 15%, marking Japan as the first country to secure a decrease in the standard 25% rate on vehicles. Cars represent over a quarter of Japan’s total exports to the US.
However, Japanese steel and aluminum will continue to face a 25% tariff.
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The deadline for the pause on tariffs is approaching on 1 August, following a six-week extension from the initial 90-day freeze announced by President Trump on 9 July.
This agreement is seen as a win-win situation as Japan is a significant trading partner of the largest economy in the world.
As part of the trade agreement, Japan has committed to a $550 billion (£406 billion) investment package consisting of loans and guarantees from Japanese government-affiliated institutions in key sectors like pharmaceuticals and semiconductors.
Furthermore, Japan will increase its purchases of US agricultural products, including rice.
Market reaction
The news of the trade deal was well-received by the markets.
The value of the dollar in the US saw an increase, while Japan’s benchmark stock exchange, the Nikkei, surged more than 3.5% and closed at a substantial gain.
The Nikkei index includes major car manufacturers such as Nissan, Honda, Mazda, Toyota, and Mitsubishi, all of which experienced a rally following the announcement.
Other Asian stock indexes also ended the day positively, with Korea’s Kospi rising by nearly 0.44%, Hong Kong’s Hang Seng increasing by over 1.6%, and Thailand’s SET index going up by more than 2.3%.