The United States and Japan reached a trade deal that includes reciprocal tariffs set at 15%, a $550 billion investment by Japan in the United States — of which the United States will receive 90% of the profits — and open trade for a list of goods, including cars and trucks, rice, and other agricultural products. Japan will immediately increase imports of U.S. rice by 75%, and purchase $8 billion in U.S. goods, including corn, soybeans, fertilizer, bioethanol, and sustainable aviation fuel. The deal will lower tariffs on Japanese vehicles from 25% to 15%, potentially making Japanese cars cheaper compared to rival China. However, the deal will still leave American trade policy more restrictive than it was before the Trump administration’s tariff policies. The lower tariff for Japan has caused consternation with American automakers, who have to pay a 25% tariff on imports from their plants and suppliers in Canada and Mexico compared with Japan’s 15% rate. Automotive levies had been a sticking point in negotiations between Japan and the United States for months.
Steel and aluminum tariffs will remain at 50%, which also may be a win for Japan, since it exports more vehicles to the United States than it does steel and aluminum. U.S. automakers will be disadvantaged because they will be paying the hefty levy on steel and aluminum they import for their vehicles.
Based on data from the Office of the U.S. Trade Representative, Japan purchased nearly $80 billion worth of U.S. products in 2024, while the U.S. bought about $148 billion worth of Japanese goods. Cars and auto parts accounted for about $52 billion worth of imported Japanese products, making up more than one-third of products purchased by the United States. In 2024, Japan had shipped about 1.4 million vehicles to the United States, making it the third-largest exporter after Mexico and South Korea. Japan’s auto exports to the United States made up 28.3% of all shipments in 2024, according to customs data.
The tariffs affected the Japanese auto industry, with export deliveries to U.S. ports dropping. Japanese auto exports to the United States fell 26.7% in June, on top of May’s drop of 24.7%. The country’s overall exports to the United States — its second-largest trading partner — declined 0.8% year-on-year between January and June, totaling $70.34 billion.
According to President Trump, Japan and the United States are also working on an additional deal involving Alaskan liquefied natural gas (LNG). The Trump administration is working on a proposed Alaska pipeline to transport natural gas across the state and export it overseas — a $44 billion project. The 810-mile natural gas pipeline would be among the largest in the world, and Japan, South Korea, and other nations are interested in partnering with the United States and investing trillions of dollars in future purchases of LNG from the Alaska facility. The project would provide a shorter shipping distance to Asia than the U.S. Gulf Coast and avoid the Panama Canal, which was under a drought in 2023, causing severe bottlenecks.
Changes to Trade Policy May Not Help the American Auto Market in Japan
American automakers do not produce the small cars that Japanese consumers prefer, so Japanese auto buyers may not want an American automobile or even the best-selling Ford F-150, according to Axios. Japan is a right-hand-drive market, requiring extra engineering, with different safety and emissions standards. According to Commerce Secretary Howard Lutnick, Japan will “take U.S. cars based on U.S. standards, so you don’t have to make a different car” for the Japanese market. But even with that provision, the interest may not be there for the Japanese buyer.
American Automakers are Not Happy with the Japan Trade Deal
General Motors, Ford, and Chrysler-parent Stellantis raised concerns about the trade deal because of the higher tariff rates on imports from Canada and Mexico. According to Matt Blunt, head of the American Automotive Policy Council representing the Detroit Three automakers, “any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American-built vehicles with high U.S. content is a bad deal for U.S. industry and U.S. auto workers.”
General Motor’s second-quarter earnings declined by $1.1 billion, likely due to the tariffs, and the company expects the impact to worsen in the third quarter. The tariffs have cost Stellantis $352 million so far as the company reduced vehicle shipments and cut production to adjust manufacturing levels. Stellantis expects more impact from U.S. tariffs on vehicles and auto parts imports in the second half of 2025.
In April, Trump lowered duties on auto parts and materials, but left in place 25% tariffs on imported vehicles. He also extended a duty-free exemption for North American parts that comply with the U.S.-Mexico-Canada trade agreement (USMCA) rules of origin.
Analysis
The deal is a partial sign of relief as it reduces tariffs on Japanese vehicles from 25% to 15%, lowering costs for U.S. consumers, who can access Japanese cars (which made up 28.3% of U.S. auto imports in 2024) at potentially lower prices than had the tariffs remained at 25%. Similarly, Japan’s commitment to increase U.S. rice imports by 75% and purchase $8 billion in U.S. agricultural goods (e.g., corn, soybeans, bioethanol) opens markets for American producers, fostering export-led growth in sectors where the U.S. might have a comparative advantage. The $550 billion Japanese investment in the U.S., with 90% of profits allocated to the United States, could affect the American energy economy, particularly projects like the proposed $44 billion Alaskan LNG pipeline. This pipeline, by shortening shipping routes to Asia and bypassing Panama Canal bottlenecks, could enhance the competitiveness of U.S. energy exports.
However, the deal retains significant protectionist measures that undermine market efficiency and competition. Most notably, the persistence of 50% tariffs on steel and aluminum disadvantages U.S. manufacturers who rely on imported materials, raising their production costs and eroding their competitiveness. For automobiles in particular, this selective tariff structure distorts the market, potentially favoring Japanese auto exports while penalizing U.S. manufacturers, who face higher costs for inputs and a 25% tariff on inputs imported from Canada and Mexico under the USMCA.
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