U.S. Trade Deal Is a Mixed Victory for Japan, a Template for Regional Partners

(YUICHI YAMAZAKI/AFP via Getty Images)

A photo taken on Feb. 21, 2025, shows Subaru vehicles bound for shipment at a port in Yokohama, Japan.

The U.S.-Japan trade deal is an economic win for Japan and its ruling party, but it may herald the end of Prime Minister Shigeru Ishiba's term. The deal will also help strengthen U.S.-Japan military cooperation to deter China and help South Korea and Taiwan secure their own deals. In a July 22 post on Truth Social, U.S. President Donald Trump announced he had reached a trade deal with Japan that will reduce U.S. tariffs on Japanese goods to 15%, down from Trump's initially threatened 25%. Under the deal, which Japanese Prime Minister Shigeru Ishiba confirmed on July 23, U.S. tariffs on Japanese automobiles will also be reduced to 15%, but Japanese steel and aluminum products will remain subject to 50% sectoral tariffs. In exchange for the reduced levies, Japan has agreed to remove non-tariff trade barriers to U.S. automobile imports and increase purchases of U.S. rice by 75%, as well as buy $8 billion in U.S. agricultural products and 100 Boeing jets. Japan has also agreed to raise defense purchases from the United States from $14 billion to $17 billion annually. In addition, Japan pledged to create a $550 billion fund to make investments in the United States. Surrounding this deal, allegations swirled in the media about whether Ishiba would resign now that the critical trade deal had been announced, just days after his Liberal Democratic Party-led coalition lost its majority in the upper house of Japan's legislature following elections.

Trump announced a 25% tariff on imported automobiles in March and so-called reciprocal tariffs on dozens of countries (including a 24% tariff on Japan) in early April, the latter of which are paused until Aug. 1. Since then, Japan has been engaged in rapid-fire negotiations with the United States to seek tariff relief. Particularly important for Tokyo is relief for the automobile sector, which employs roughly 8% of Japan's workforce and comprises more than a third of its exports to the United States. To that end, Ishiba designated his close political ally and economic minister, Ryosei Akazawa, as trade envoy to the United States. Akazawa has taken several trips to the United States since April, most of which ended without success as Washington refused tariff relief for automobiles.
Japan's ruling Liberal Democratic Party (LDP) lost its majority in July 20 upper house elections. In the wake of the defeat, some LDP members have called on Ishiba to resign, but Ishiba pledged he would stay in office to resolve the U.S. trade deal and seek lower consumer prices for Japanese households. Then, after the trade deal was unveiled on July 22, Ishiba announced that he would decide whether to step down after he finished analyzing the full details of the trade deal and met with LDP elders. The Japanese newspaper Yomiuri Shimbun reported on July 23 that Ishiba had decided to resign within a month, potentially before the end of July, but the prime minister later refuted this claim under questioning from journalists.

The trade deal will help silence some of the LDP's critics and support the continuation of its minority government, but it is a Pyrrhic victory for Ishiba, whose post-election resignation has likely been accelerated. The reduced U.S. tariffs will provide immediate relief for Japan's export industries, as well as a much-needed policy win for the LDP, which had been criticized as a ''do-nothing'' party ahead of the October 2024 lower house elections and the July 2025 upper house elections, both of which it lost. With Japanese households demanding relief from rising consumer prices, Tokyo's pledge to purchase more U.S. rice imports as part of the deal is also particularly salient. While this concession may anger the LDP's agricultural constituencies, more rice supplies could modestly ease prices for a commodity that is politically and economically sensitive in Japanese society. Additionally, the pivotal trade deal has enabled the LDP to again demonstrate its ability to mitigate threats to Japan's economy posed by Trump's tariffs, following its success in reaching the 2019 U.S.-Japan trade deal during Trump's first term. This makes it more likely that opposition parties, which hold a majority in the Diet's powerful lower house, opt to cooperate with the ruling LDP coalition in the future, rather than seek to replace it. Such cooperation would reduce the risk of a dysfunctional opposition — composed of at least six ideologically distinct parties — making moves that would precipitate early elections, which would threaten the LDP's long-term efforts to defuse debt risks, deter Chinese aggression by modernizing Japan's military and strengthening regional alliances, and ease demographic pressure by increasing immigration. However, for Ishiba himself, the trade deal may be his undoing. Middle- and high-ranking LDP officials are still openly calling for Ishiba to step down to take responsibility for the party's defeat in recent upper house elections. And with the deal now announced, Ishiba's July 21 justification for refusing to heed such calls — that he first needed to reach a trade agreement with the United States — is no longer valid. Despite Ishiba's equivocations about whether and when he would resign, LDP elders will likely move to replace him in the next month. This is because the party needs enough time to choose a new LDP president and negotiate with opposition parties in the Diet, in order to ensure it has the votes needed to confirm Ishiba's successor as the next prime minister during the annual extraordinary Diet session, which usually begins in late September.

Since the LDP lost its majority in the lower house in October, the opposition has had the power to remove Ishiba from office, assuming perfect coordination. When combined, the five largest opposition parties have a majority in the lower house steering committee, which decides whether to table a no-confidence vote. Together, these parties also have more than enough votes to meet the one-fourth threshold necessary on the floor of the lower house to pass a no-confidence vote, once it is tabled. If such a vote were passed, Ishiba would then have to either resign or call a snap lower house election. But there are two key factors preventing such an opposition-led ouster. For one, the opposition parties hold varying levels of confidence about their prospects in the new lower house elections, meaning some will be more wary of triggering an early ballot than others. These parties also have differing ideological stances, with some parties aligning more with the LDP on policy than with their fellow opposition parties, which hinders their coordination to oust Ishiba.
There are two main threats the LDP leadership could leverage to oust Ishiba as prime minister, including the threat to pull Diet support. In Japan's political ecosystem, party discipline is highly prized, with Diet lawmakers tending to vote the way in which their elders instruct them. This could pose the risk of Diet dysfunction as LDP factions refuse to support the passage of bills formulated by Ishiba-loyal lawmakers. Alternatively, the elders could rally for their supporters in the Diet and at the prefectural level to support a motion for an early party presidential election, under the assumption that Ishiba would lose. But actually implementing these punitive measures is rarely necessary, as LDP prime ministers almost always resign when the bulk of party elders express to the prime minister that they have withdrawn their support.

The deal will help ease U.S.-Japan tensions and thereby improve bilateral military cooperation. Shortly after U.S.-Japan trade talks began in April, Trump said the ''cost of [U.S.] military support'' was part of those discussions, in what was a likely reference to disputes over cost-sharing for U.S. troops stationed in Japan and Japan's defense expenditures. Though Trump subsequently reassured Tokyo that defense matters would be reserved for separate talks, Washington has since hinted at incorporating security concerns into trade talks with China and has already done so with the Philippines. However, to secure U.S. tariff relief, Japan only had to agree to increased purchases of Boeing jets and slightly higher defense spending, instead of larger security concessions that would have disrupted Tokyo's domestic or regional defense initiatives. This will help restore some of Tokyo's shaken confidence in its partnership with Washington, thereby easing a major source of tension that will, in turn, help support bilateral defense cooperation.

Improved U.S.-Japan military cooperation could take the form of accelerated planning and implementation of their joint command structure, which is intended to allow U.S. military leaders to better coordinate action among U.S. military branches in Japan and to more smoothly plan for regional conflict contingencies with their Japanese counterparts.

The agreement will also help facilitate U.S. trade deals for other regional powers exposed to Trump's sectoral tariffs, like South Korea and Taiwan. The deal paves the way for other U.S. security partners in the region, such as South Korea and Taiwan, to finalize their own trade deals with Washington. To that end, the South Korean president's office announced on July 23 that it was reviewing the U.S.-Japan deal ''for reference'' in its own negotiations. In particular, Seoul is likely interested in the significant relief Japan secured from U.S. tariffs on the automobile sector, given the exposure of South Korea's export industries to those tariffs and potential future U.S. tariffs on the semiconductor sector. Taiwan, likewise, is seeking relief from U.S. tariffs on its automobile parts industry and is looking for a template to negotiate its way out of future semiconductor tariffs. Taiwan and South Korea lack Japan's financial firepower, but given the dubious prospects for full implementation of Japan's vague $550-billion investment pledge, the two countries may still be able to extract sectoral tariff relief by making significant investment promises with Washington, regardless of their intent or ability to keep them in the coming years.

Details are still scant on Japan's $550 billion investment pledge, but sources cited by Bloomberg claim that the profits from the U.S.-based operations of private Japanese companies (including automobile manufacturers) could be redirected to investments in the United States as part of the scheme. Some private Japanese firms have been willing to consider this exact trade-off — namely, increasing U.S. investment in exchange for lower tariffs on their exports to the United States — but in a private capacity (i.e., not at the behest of Tokyo). Moreover, given that Japan has a market economy with private companies that act largely of their own volition, it would be next to impossible for Tokyo to coordinate such voluntary, private-sector investments in the United States to the tune of $550 billion above and beyond current investment levels.