TOKYO/WASHINGTON, July 22 – U.S. President Donald Trump has finalized a wide-reaching trade agreement with Japan, slashing tariffs on automobile imports and averting additional duties on other Japanese goods. The agreement includes a staggering $550 billion investment package from Japan, aimed at bolstering the U.S. economy and reinforcing economic cooperation between the two countries.
Announced on July 22, the deal has sparked considerable excitement in global financial markets, particularly in Japan where auto stocks surged. Trump, known for his aggressive trade tactics, described it as “the largest TRADE DEAL in history” on his Truth social platform, calling the moment historic for the relationship between the United States and Japan.
Lower Tariffs, Bigger Gains
Under the new agreement, the United States will reduce its existing tariffs on Japanese automobiles from 25% to 15%, offering relief to one of Japan’s most crucial export sectors. This shift will benefit major automakers like Toyota and Honda, whose stocks saw double-digit gains following the announcement. Toyota’s shares soared by more than 14%, while Honda saw nearly a 12% increase, helping drive Japan’s benchmark stock index up over 3% to its highest point in a year.
The revised tariffs are expected to preserve Japan’s dominant position in the U.S. auto market, a sector that accounts for more than a quarter of Japan’s total exports to the United States. Additionally, duties that were previously set to be imposed on a broader range of Japanese goods starting August 1 have also been reduced by the same margin.
Japan’s lead negotiator, Ryosei Akazawa, declared “#Mission Complete” in a post on X after concluding the final meeting with Trump at the White House. While the deal avoids penalties on many key sectors, it does not include changes to existing tariffs on Japanese steel and aluminum exports, which remain taxed at a steep 50%.
The $550 billion investment initiative includes loans and guarantees by Japanese institutions to support the development of U.S.-based supply chains, especially in critical sectors like pharmaceuticals and semiconductors. This strategic move is aimed at strengthening bilateral economic resilience and reducing overreliance on unstable global networks.
Mixed Reactions from Industry
Despite the optimistic tone from Tokyo and the stock markets, the deal has been met with resistance from U.S. automakers and trade policy advocates. The American Automotive Policy Council, representing General Motors, Ford, and Stellantis, voiced concerns that the agreement creates an imbalance. The core of their argument is that it gives Japanese imports with minimal U.S. content an unfair advantage over North American-built vehicles that incorporate higher levels of domestic manufacturing.
“This is a bad deal for American industry and workers,” said Matt Blunt, the council’s president. “It sends the wrong signal when tariffs are lower on imports from abroad than they are on vehicles made in North America using a significant amount of U.S. labor and materials.”
Japan’s autos have traditionally flowed one-way into the U.S. market. In 2024, Japan shipped more than $55 billion in vehicles and auto components to the U.S, whereas American automakers exported slightly above $2 billion to Japan. This glaring imbalance has long been a source of frustration for Trump, who has campaigned heavily on fixing trade deficits.
In total, two-way trade between Japan and the U.S. reached nearly $230 billion in 2024. Japan maintained a trade surplus of around $70 billion, making it one of the largest contributors to the U.S. trade deficit.
Economists have suggested the new deal helps Japan avoid a potential recession. With lower tariffs, export volumes are expected to rise, offering stability for the country’s auto-dependent economy. Japan, already the largest foreign investor in the United States, has nearly $2 trillion tied up in American financial markets through its central bank, pension funds, and insurance companies. As 2024 came to an end, Japanese firms had committed around $1.2 trillion in direct investments across the United States, with $137 billion flowing into North America just last year.
Trump also hinted at more collaborative ventures ahead, including a possible joint energy project in Alaska. According to Trump, discussions are progressing for a Japanese-American partnership to support a long-stalled gas pipeline, signaling deeper ties beyond trade and manufacturing.
The president’s team is actively working to lock in multiple trade deals before an August 1 deadline. That date marks the start of a new phase of tariffs that Trump has warned about, which could target countries failing to meet new U.S. trade criteria. Framework deals have already been announced with several nations including Britain, Vietnam, and Indonesia. Talks with the European Union are also expected to intensify, with negotiators scheduled to arrive in Washington soon.