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U.S. President Donald Trump. (Photo courtesy of Yonhap News) |
[Alpha Biz= Kim Jisun] Tokyo – Japan has obtained tariff reductions on automobiles under a trade agreement signed in July through an executive order by U.S. President Donald Trump, but concerns are mounting over the terms of an accompanying investment memorandum of understanding (MOU).
According to the Nikkei on September 6, Trump’s executive order confirmed a reduction in U.S. tariffs on Japanese autos from 27.5% to 15%. However, the deal also requires Japan to follow through on an investment pledge worth USD 550 billion (approx. KRW 765 trillion), with the risk that tariffs could be reinstated if the commitment is not met.
While Tokyo initially pushed for an early implementation of the tariff cuts, it ultimately accepted Washington’s demand for a written MOU, transforming what had been a verbal investment promise into a binding document.
Industry observers note that the investment terms are skewed against Japan. Under the agreement, investment projects must be recommended by a committee chaired by the U.S. Secretary of Commerce and finalized by the President. The investment period is specified to run until January 19, 2029, the final day of Trump’s presidential term. Critically, the MOU states that failure to provide the pledged funds could result in tariffs being raised again.
The MOU does not outline Japan’s financing mechanisms. Tokyo has indicated it could leverage the Nippon Export and Investment Insurance (NEXI) and the Japan Bank for International Cooperation (JBIC) for loans, guarantees, or equity contributions. However, the profit-sharing structure is disadvantageous: until JBIC loans are fully repaid, profits are split evenly between the U.S. and Japan, but afterward, 90% of project profits will go to the U.S.. In exchange, Washington pledged to provide land and infrastructure support.
The Mainichi Shimbun warned that formalizing the pledge may increase pressure on Japan to carry out large-scale investments, raising concerns that Tokyo could be forced to shoulder unprofitable projects if the U.S. insists on them.
Another point of contention is the lack of most-favored-nation (MFN) treatment for Japanese pharmaceuticals, semiconductors, and semiconductor equipment. Although the joint statement released by Tokyo stated that Washington had agreed to apply MFN treatment in these sectors, Trump’s executive order did not include such provisions.
알파경제 Kim Jisun (stockmk2020@alphabiz.co.kr)
