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Japan has agreed to let Donald Trump decide where $550bn worth of its capital is invested in the US as part a deal to avoid high tariffs, according to an unpublished memorandum signed by the two countries on Wednesday.
The memo, signed on Thursday when Trump officially enacted the trade deal, also gives Japan just 45 days to fund projects earmarked by the president — or face the reimposition of his steep tariffs.
The unusual terms agreed between the US president and the world’s fourth-largest economy underscore the extraordinary lengths that Washington’s trading partners will go to in order to secure tariff relief.
Japan, one of the Washington’s closest allies, had faced a tariff on its exports to the US of 25 per cent. The new deal reduces it to 15 per cent.
South Korea and the EU have also pledged to plough huge sums into the American economy in a bid to avert punitive taxes on their exports.
But the details surrounding such promises have until now been hazy — and Washington and other foreign capitals have offered diverging accounts of the terms.
Japanese officials previously offered a different account from Trump’s officials about how the proceeds of their investment into the US would be split with Washington, suggesting the shares would reflect the size of each country’s investment.
The new memorandum released on Thursday showed that the US would strongly benefit from the profits on Japan’s $550bn worth of investments.
The countries will evenly split the cash flow generated until Japan’s investment is paid off — at which point the US will take 90 per cent of the proceeds.
The deal is the latest in a series of unorthodox moves by the president aimed at boosting US government profit and reordering global trade to favour his “America First” agenda.
Last month, Trump struck a deal with US chipmakers Nvidia and AMD that will see them pay the administration a portion of revenue generated by chip sales in China. The White House has also said it would take a 10 per cent stake in chipmaker Intel.
Trump also earlier approved this year took a golden share in US Steel as part of his approval of Japanese producer Nippon Steel’s $15bn takeover of the company.
The billions of dollars promised to the US by Japan come as part of a broader deal struck to lower Trump’s punitive so-called reciprocal tariffs. Aside from dropping the headline rate, the US also reduced the levy on Japanese cars and car parts from 27.5 per cent to 15 per cent.
The US codified the new tariff rates in an executive order at a ceremony with Japanese officials at the commerce department.
Earlier this year, Trump framed Japan’s proposed investment pledge as a “signing bonus”, and said the Asian country had “bought down” US tariffs, although US levies on imports from Japan are higher than they were before the president returned to office.
The memorandum said Trump would be given the final pick of potential investment projects put to him by an investment committee chaired by US commerce secretary Howard Lutnick.
The memo also sets out that the investment committee should attempt to choose Japanese suppliers to “provide goods and services” for any of the projects invested in, where possible.
“This initiative could have a positive medium- to long-term impact on Japanese exports, depending on the procurement ratios,” Morgan Stanley economist Takeshi Yamaguchi wrote in a note to clients on Friday.
