(Bloomberg) — US industries and protectionists are raising alarms with President Donald Trump’s pact with Japan, saying it risks undercutting his stated goals of rebalancing America’s trading relationships and reviving domestic manufacturing.
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Trump and his top negotiators on Wednesday hailed the deal as a potential model for other countries hoping to win tariff concessions, citing Tokyo’s pledge to create a $550 billion fund for US investments.
The president’s decision to grant Japan relief on automobiles, however, provoked criticism that the agreement wouldn’t address the main source of the US’s trade deficit with Japan even as it disadvantages Detroit’s Big Three. Around 80% of the US-Japan trade gap is in cars and car parts.
Tuesday’s announcement marked the latest signal that Trump is willing to negotiate on industry-specific duties on products including chips and pharmaceuticals, potentially undermining the most durable pillar of his tariff strategy.
The reaction underscores the risks of the president’s transactional negotiating style. Industries that have championed much of Trump’s trade strategy and stand to benefit from robust levies on foreign rivals could be left in the lurch as his plans shift.
“Any deal that charges a lower tariff for Japanese imports with virtually no US content than it does North American built vehicles with high US content is a bad deal for the US industry and US auto workers,” said Matt Blunt, president of the American Automotive Policy Council that represents Ford Motor Co., General Motors Co. and Stellantis NV.
Trump defended his approach, which resulted in a deal to reduce Japan’s country-specific rate to 15% and put US levies on cars and parts at the same level — lower than the 25% global charge on vehicles.
“I WILL ONLY LOWER TARIFFS IF A COUNTRY AGREES TO OPEN ITS MARKET. IF NOT, MUCH HIGHER TARIFFS! Japan’s Markets are now OPEN (for first time ever!). USA BUSINESSES WILL BOOM!” Trump posted.
His Commerce Secretary, Howard Lutnick, argued in a Bloomberg Television interview on Wednesday that it was also ratcheting up pressure on South Korea and Europe to make additional concessions or risk their automakers being left at a significant disadvantage. And White House Press Secretary Karoline Leavitt said Trump’s approach was breaking down barriers for US products abroad.
“Thanks to President Trump, these countries around the world are agreeing to open their markets to American-made products and goods for the first time, which will lead to a boom in sales and profits for American businesses right here at home,” she told reporters Wednesday.
Even so, automakers and other industry stakeholders were crying foul Wednesday. They warned that giving Japan an unlimited reduction on auto tariffs undermines the use of those levies not just for cars, but also metals, semiconductors and other goods.
“Unlimited imports at tariff rates below existing Section 232 rates critically undermine” the intention of the law and could actually encourage offshoring, said Jon Toomey, executive director of the Coalition for a Prosperous America, an advocacy group representing import-threatened industries that supports tighter trade controls.
The provision on Japanese autos is far more expansive than the steel and aluminum tariff reduction Trump gave the UK, which allows a limited quota of imports to enter the US at a reduced rate.
Industry-specific tariffs imposed under Section 232 of the Trade Expansion Act are seen as a more lasting tool than Trump’s country-based tariffs for boosting the competitiveness of US-made goods, since they rest on stronger legal footing, and some have endured across multiple presidencies. Industry groups also say the product-specific rates provide certainty needed to drive investment in domestic manufacturing plants.
Other countries already are clamoring for sectoral tariff relief, and the US-Japan trade deal sends a signal that they are up for negotiation, people familiar with the matter said. Two of those individuals predicted the agreement will also add leverage to the auto and oil industries’ pleas for relief from steel duties.
“It doesn’t make sense to allow for unlimited vehicle imports at 15%, while charging rates of 25% on auto parts and 50% on steel,” Toomey added.
It’s also unclear how and when the $550 billion investment fund might come to pass — or if it will prove to be as illusory as investment pledges Trump secured during his first term from China in exchange for scaling down tariffs. Although Beijing promised in 2020 to buy $200 billion in additional US agricultural commodities and other goods, ultimately only 58% of those purchases materialized amid the pandemic, according to the Peterson Institute for International Economics.
Trump administration officials cast the Japan deal, as well as frameworks with Indonesia and the Philippines, as incentive for other major partners, including the European Union and South Korea, to bring their best investment and purchasing pledges to the table.
“It spurs other deals along,” White House trade adviser Peter Navarro said in a Bloomberg Television interview.
Treasury Secretary Scott Bessent made clear the investment plan helped Japan secure its tariff reduction, telling Bloomberg Television: “They got the 15% rate because they were willing to provide this innovative financing mechanism.”
Lutnick said on the network that under the arrangement Japan will serve as a financier providing equity, loans and other support for manufacturing plants, infrastructure and other projects in the US.
Other countries will be under pressure to follow the investment model, said a senior administration official who asked for anonymity because details haven’t been formally announced. The investment deals could prove especially attractive to Trump, who frequently extols planned spending in the US announced since his January inauguration. The president and top administration officials also regularly tout the surge in revenue from new tariffs, which have already brought in $113 billion this year, according to the Treasury Department.
The US-Japan deal’s emphasis on investment suggests the promise of more revenues has taken priority over the push to protect domestic industries, one person familiar with the matter said.
While direct foreign investment in the US could help expand domestic manufacturing and artificial intelligence capacity, it won’t necessarily make the country’s exports more competitive on its own.
And some analysts raised doubts about whether Japan’s promises to open its markets to US products would prove meaningful.
The administration cast Japan’s concession to accept cars made to US federal motor vehicle safety standards instead of subjecting them to additional regulatory requirements as a boon for Detroit.
Even so, a major impediment to US auto sales in Japan is the American designs themselves — not just trade barriers. Put simply, Japanese consumers are less interested in driving Fords and GMs than Americans are in Toyotas and Hondas. Japan sells the US about 84 cars for every one the US sells there.
“American cars that are big just don’t comport well with the needs, desires and demands of the Japanese public” said Colin Grabow, an associate director at the Cato Institute’s trade policy center. “It’s unclear what the payoff here is.”
–With assistance from Keith Laing, Hadriana Lowenkron, Joe Mathieu, Tyler Kendall and Stephanie Lai.
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