Tariffs, US-Japan agreement: tariffs to 15% and Tokyo to invest 550 billion in the US

From our correspondent

NEW DELHI - After months of intense negotiations, the United States and Japan yesterday initialled a trade agreement that cuts tariffs imposed by US President Donald Trump against the US' main Asian ally from 25 per cent to 15 per cent. Included in the agreement - the first really significant one since the outbreak of the trade war unleashed by the White House - is the automotive sector, which alone is worth a quarter of Japan's exports to the US and which, for the passenger vehicle part, was burdened by tariffs of 27.5 per cent.

The news of tariffs being lowered on cars made in Japan was greeted with disappointment by American manufacturers because of their high degree of integration with Mexico and Canada, two countries burdened with 25 per cent tariffs. Tokyo has promised to lower the non-tariff barriers that currently limit the export of US cars to Japan, although there is scepticism in Tokyo about the appeal of American cars.

Japan has announced that it will finance investments in the US up to USD 550 billion. Outlining the contents of the agreement, Japanese Prime Minister Shigeru Ishiba explained that "the package includes loans and guarantees from institutions affiliated with our government to enable Japanese companies to build supply chains in sectors such as pharmaceuticals and semiconductors". A White House official explained that Tokyo pledged to purchase 100 aircraft from Boeing and to increase the 'American' portion of its defence budget from USD 14 billion to USD 17 billion.

"With a 15% tariff rate, I expect the Japanese economy to avoid recession," explains Kazutaka Maeda, economist at the Meiji Yasuda Research Institute. The news of the deal was greeted with enthusiasm by investors, because although high, a 15% tariffs level is considered manageable, not only compared to the 25-30% tariffs that have been envisaged so far, but also in comparison to the uncertainty of these months.