President Donal Trump just notched another key trade deal this week with one of America’s biggest trading partners, Japan. America’s negotiator-in-chief managed to secure a half-trillion dollars of investment and preferential treatment for US companies in one of Asia’s biggest markets, which also helps box out China, America’s number-one adversary.
The deal will ultimately mean more investment, income, innovation, and jobs in the US. Japan has agreed to invest $550 billion, with 90 percent of the profits staying stateside. This means more construction and factories, more research and development, and more employment of Americans.
Japan also agreed in this landmark deal to open its markets to American exporters by removing trade barriers on automobiles, agricultural products including rice, energy, industrial inputs, and more.
America is now poised to dominate liquified natural gas (LNG) exports to Japan, which is the world’s second-largest purchaser of LNG. Since the US sits on one of the world’s largest natural-gas deposits, this is a win-win for both nations.
Increasing American exports will help domestic industries thrive by increasing production and employment. As nations like Japan drop their trade barriers and open their markets to US exporters, the demand for those exports rises, and so does the demand for American labor that provides those exports. That means more jobs and faster wage growth here at home.
In exchange for so many concessions on the part of Japan, the US will reduce tariff rates from 27.5 percent on automobiles and 25 percent on almost everything else down to 15 percent. Toyota, which makes many of its vehicles in America but still relies on production in Japan, saw its stock explode on the news, having its best day in 38 years.
Japan is now the fifth bilateral trade agreement secured by the Trump administration this year, coming on the heels of deals with the United Kingdom, Vietnam, the Philippines, and Indonesia. The Japanese deal is arguably the best of the bunch for both countries, given the bilateral reductions in tariff and non-tariff barriers that will increase international trade and prosperity.
And although both nations will benefit, it’s amazing how positive the deal is for the US. As Treasury Secretary Scott Bessent said in an interview this week, Japan will "provide equity, credit guarantees, and funding for major projects in the US,” all of which will help fuel economic growth here at home.
Alongside Mr. Trump, Mr. Bessent deserves tremendous credit for shepherding these monumental trade deals through the negotiating process. The Treasury Secretary has proven himself not only a master of foreign financial markets, but an adroit negotiator in foreign affairs as well.
Both men understand that the real goal in their crusade to reorient international relations is to give American exporters unprecedented access to foreign consumer markets. Mr. Trump reaffirmed this in social media post after the Japan trade deal was announced, saying, “I will always give up Tariff points if I can get major countries to OPEN THEIR MARKETS TO THE USA.” [sic]
Mr. Trump has doubled down on the strategy he pursued during his first administration, wherein he famously offered to drop all of America’s trade barriers against the European Union if those nations reciprocated. They balked instead of taking the deal. Europe would be wise to come back to the negotiating table and work out an agreement like Japan did.
One last reason the Japan deal is so beneficial for the US is that it helps to isolate China. Securing deals with major Asian economies (like Japan, Vietnam, the Philippines, and Indonesia) helps box out China, giving America much needed negotiating leverage with the world’s second-largest economy. Every deal inked by the US makes China more desperate.
Although the deal with Japan isn’t perfect, it’s darn close – and that’s especially impressive given all the “experts” who said it couldn’t be done at all. If politics is the art of the possible, as Otto von Bismarck quipped, then Messrs. Trump and Bessent are artistic masters.
E.J. Antoni, Ph.D., is Chief Economist and the Richard Aster fellow at the Heritage Foundation and a senior fellow at Unleash Prosperity.
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