Japan and the United States have differences over the details of the tariff agreement

On July 23, the Trump administration of the United States announced the outline of the agreement on the Japan-US tariff negotiations. There are many discrepancies or ambiguities in the explanations of the United States and Japan on the applicable date and the framework for investment in the United States. If the content is left ambiguous, it will have a negative impact on business operations. The Japanese government plans to publish a document summarizing the consensus between Japan and the United States as early as next week. At the same time, it is also a top priority to strive to explain it in a simple and easy-to-understand way to the Japanese people.

“The 15% reciprocal tariff is expected to take effect on August 1,” Japanese Minister of Economics, Finance and Regeneration Ryomasa Akasawa, who is in charge of the negotiations, told reporters at Tokyo Haneda Airport on July 24. Japan and the United States have reached an agreement to reduce the reciprocal tariff originally planned to be raised from 10% to 25% to 15%. Regarding the reduction of automobile tariffs from a total of 27.5% to 15%, Akasawa said, “I hope it will be implemented as soon as possible.” A Japanese government official also expressed the view on the 24th that “it will be later than the reciprocal tariff.”

The summary of the agreement released by the US government states that “a basic tariff rate of 15% will be applied to goods imported from Japan”, but does not specify the date of application.

Akazawa explained, “We understand that necessary measures such as issuing a presidential order will be taken in the future.” The reason is that Trump’s tariffs were previously launched unilaterally based on the US presidential order.

Japanese automakers, which account for 30% of Japan’s exports to the US, have significantly lowered their export prices to North America due to the tariffs, and have adopted a strategy of absorbing the tariffs themselves and suppressing price increases in the local area to ensure market share. For Japanese automakers, this means sacrificing profits. Therefore, the date of application of the new tariffs is a matter of life and death.

Toyota Motor President Tsuneharu Sato said on the 24th that “it is possible” regarding the issue of reverse importing cars produced in the United States to Japan for sale.

There are also unclear points about Japan’s investment in the United States.

“Japan will invest $550 billion (about 80 trillion yen) in the United States under my instructions,” Trump posted on his social networking site (SNS) on the 22nd.

The US document refers to the framework that links assets and investors as “Investment Vehicle”, and states that 90% of investment income will belong to the United States. The amount of 80 trillion yen exceeds the total tax revenue of the Japanese government in one year.

On the one hand, Japan explained that the 550 billion US dollars refers to the amount of capital contribution, loans and loan guarantees of government-affiliated financial institutions. It is not a real fiscal expenditure, and if companies do not actively promote investment in the United States, it may not be used. When the investment ratio between Japan and the United States is 1:9, the profit distribution is also 1:9, but the investment ratio varies depending on individual projects.

Japan said that defense equipment is not included

Regarding Japan’s expansion of imports of US rice, the US document mentioned that “it will increase by 75% immediately.” Japanese Agriculture Minister Shinjiro Koizumi told reporters at the Ministry of Agriculture, Forestry and Fisheries on the 24th that expanding the purchase of US rice “can be determined by the Japanese side”, but he also said that “it is not a fixed framework.”

Japan plans to increase purchases from the United States within the framework of zero-tariff minimum market access (MA) rice. Koizumi stressed that “in terms of total volume, rice imports will not increase.”

The U.S. document also states that “(Japan) will purchase billions of dollars of additional U.S. defense equipment every year.” Akazawa pointed out at a press conference on the 22nd that “the agreement does not include content related to defense costs.”

Japanese Defense Ministry officials also expressed their opinion on the 24th that the requirements can be met by purchasing weapons and equipment within the scope of the existing plan.

The Japanese Defense Ministry provided the negotiation team led by Akazawa with a list of future purchases and the envisioned amount based on the deployment plan. In order to make Japan’s investment in the United States look larger, the negotiation team included the part that has been included in the defense equipment deployment plan in the total amount.

No common document

The reason for the discrepancy between the statements and explanations of Japan and the United States is that, unlike usual trade negotiations, no agreement document jointly compiled by both parties was prepared this time. The Japanese government plans to release a document next week summarizing the consensus on the content of the agreement. It is not expected to be signed.

Japanese Prime Minister Shigeru Ishiba listened to Akazawa’s report at the Prime Minister’s Office on the 24th, who returned to Japan after completing tariff consultations with the United States. Ishiba later told reporters: “There is no specific discussion on signing the agreement document at present.”

Ishiba said: “I think the United States will take steps such as issuing a presidential order, and (Japan) will discuss future countermeasures while considering this.”

The United States has also not exchanged detailed agreement documents with countries that have reached an agreement in tariff negotiations. Trump announced the agreement with Vietnam on July 2, but did not even disclose the details. The United States’ negotiations are being carried out simultaneously with many countries, and the routine work may not have kept up.

The head of the negotiations on the US side, Finance Minister Bessant, said in an interview with Fox News on the 23rd: “If Japan does not comply with the agreement, tariffs on automobiles and other products will return to 25%.” He said that Japan’s implementation will be evaluated quarterly, and if President Trump is not satisfied, the tariff rate will be raised again.

Regarding Bessant’s remarks, Akazawa denied on the 24th, saying: “I don’t remember discussing it with Trump or US cabinet members”, but for Japan, this may become an uncertain factor.

Although Japan and the United States have reached an agreement, the Japanese government will continue to communicate with the United States on the issue of tariffs. It is necessary to coordinate with each other in terms of understanding and release information properly to eliminate the concerns of enterprises and other parties.