New Documents Reveal Next Steps for U.S.-Japan Trade Deal

Commentary by Kristi Govella

Published September 9, 2025

On September 4, several new documents revealed the next steps for the trade deal that the United States and Japan first announced on July 22. In the initial framework agreement, Tokyo promised Washington $550 billion in Japanese investment and improved market access for specific U.S. products, while the United States committed to reducing reciprocal and automobile tariff rates to 15.0 percent from 25.0 percent and 27.5 percent, respectively. However, lingering questions about when the United States would lower tariffs and about how Japan would invest meant that additional details needed to be worked out.

Consequently, three additional documents have been released. First, President Trump's executive order (EO) on "Implementing the United States-Japan Agreement" carried out the previously agreed-upon 15 percent tariff rates on reciprocal and automobile tariffs for Japan. Second, a separate memorandum of understanding (MOU) outlined new mechanisms that give the United States the power to direct and monitor Japanese investments under the agreement. Third, a joint statement was released that confirms and updates Japanese commitments related to market access for U.S. producers and U.S. assurances on future sector-specific tariffs. According to both the EO and the MOU, the U.S. maintains the right to increase tariffs if Japan does not fulfill its commitments, giving it continued leverage in future discussions. Although these new documents resolve some of the ambiguities that have caused tensions in U.S.-Japan relations in recent weeks, they also reveal potential pitfalls ahead. More broadly, they set a potential precedent for other countries attempting to implement their own deals with the United States.

Executive Order: Implementing U.S. Tariff Reductions

The main aim of the September 4 EO was to implement the tariff reductions that the United States had initially promised in the July 22 trade deal announcement. First, the EO clarifies that reciprocal tariffs on Japanese goods will not "stack," which means that they will be limited to a maximum of 15 percent overall. Trump's original July 31 EO announcing reciprocal tariff rates for various countries included a "no stacking" provision for the European Union but not for Japan, so Japanese goods that were already subject to tariffs were charged an additional 15 percent on top of the original duties. Japan immediately asked the United States to correct this misunderstanding, and the Trump administration said on August 8 that it would end stacking, but the change was not implemented until September 4. The new EO applies retroactively to August 7, allowing for refunds.

Second, the EO laid out reductions for other sector-specific tariffs. Most importantly for Japan, the EO declared that tariff rates on automobiles and automobile parts from Japan would be lowered to 15.0 percent from 27.5 percent within 7 days. The auto industry makes up about 21.5 percent of Japan's total exports and employs roughly 8.3 percent of its workforce, and the initial delay in tariff reduction cost Japanese car companies an estimated $20 million per day. The EO also removed tariffs on all products included under the World Trade Organization Agreement on Trade in Civil Aircraft, except for unmanned aircraft.

In addition, the EO authorized the secretary of commerce to modify the reciprocal tariff rate to 0 percent for Japanese products that are natural resources unavailable or insufficient to meet demand in the United States, as well as generic pharmaceuticals, generic pharmaceutical ingredients, and general pharmaceutical chemical precursors. This new provision reflects a recent move by Trump to give the Office of the U.S. Trade Representative (USTR) and the Department of Commerce more discretion to implement new trade frameworks with Japan and others in ways that do not harm U.S. interests.

Notably, the EO gives the U.S. government persistent leverage over Japan moving forward by including a stipulation that the EO may be amended if Japan fails to implement its commitments, implying that tariffs may be increased in response. The secretary of commerce shall monitor the progress of Japan's implementation of its commitments under the agreement and update the president.

Memorandum of Understanding: Clarifying Strategic Investments by Japan

On the same day that the EO was released, Japanese lead negotiator Ryosei Akazawa and Secretary of Commerce Howard Lutnick signed an MOU designed to clarify how Japan's promised $550 billion in investment is expected to flow into the United States. The MOU clarifies the originally ambiguous timeline, stating that investments included under the framework agreement must be made before the end of Trump's second term on January 19, 2029. It also reiterates that investments will be made in sectors that advance economic and security interests, including semiconductors, pharmaceuticals, metals, critical minerals, shipbuilding, energy (including pipelines), AI, and quantum computing.

Beyond confirming these fundamental points, the MOU reportedly spells out several important new elements of the investment process that may have implications for other countries that have pledged investment as part of their tariff deals with the United States. First, the MOU specifies that Trump will establish an investment committee to recommend and oversee investments, chaired by the secretary of commerce and including other relevant U.S. representatives. This investment committee will confer with a consultation committee consisting of representatives from both the United States and Japan before making recommendations to the president. Investments will be executed, documented, managed, and administered by the U.S. Investment Accelerator.

Second, the MOU explains that the United States will present approved investments to Japan for review, and Japan will provide funding within 45 days. Although Japan has the right not to fund an investment after consulting with the United States, in that case, Japan will forfeit its distributions, and the United States can impose higher tariffs as determined by the president. Again, like the EO, the MOU explicitly gives the U.S. leverage over Japan in the implementation of the framework agreement.

Third, the MOU reportedly includes information on cash flows and distributions from the investments. For each investment, the United States will form a new investment special purpose vehicle (SPV). These SPVs will distribute 50 percent of cash flows to the United States and 50 percent to Japan (net of U.S. taxes) until a "deemed allocation amount" has been reached, then 90 percent to the United States and 10 percent to Japan thereafter. These are better terms for Japan than what the White House described in its July 23 fact sheet on the initial deal, which said that the United States would retain 90 percent of the profits. However, the MOU indicates that the overwhelming share of distributions is still intended to flow to the United States.

Joint Statement: Confirming Market Access and Future Sector-Specific Tariffs

The Joint Statement on the Framework Agreement between the United States and Japan on July 22, 2025, confirms pledges related to Japanese market access for U.S. producers (predominantly defined as purchases of U.S. goods by Japan) and potential future U.S. sector-specific tariffs. When compared to the July 23 White House fact sheet, some differences immediately emerge.

Several items in the joint statement seem to update-and potentially increase-the previously announced benefits to the United States. For example, while the July 23 fact sheet stated that Japan would purchase $8 billion in agricultural products, the new joint statement clarifies that the amount is $8 billion per year. The original promise of a "major expansion of U.S. energy exports to Japan" in the fact sheet has now become energy purchases totaling $7 billion per year, and a new clause about providing clean energy vehicle introduction promotion subsidies for U.S. cars has been added. A commitment by Japan to buy U.S.-manufactured defense equipment now also includes a mention of semiconductors.

Several items also reflect adjustments to accommodate Tokyo. Importantly for Japanese domestic audiences, the joint statement clarifies that Japan will increase U.S. rice imports by 75 percent within its minimum access framework, meaning that the overall level of rice imports entering Japan will not increase. Rice imports are a sensitive topic in Japan, impacting farmers who make up a key political constituency of Japan's Liberal Democratic Party. The statement also explains that the promised billions of dollars of U.S. defense equipment purchases by Japan will be pursuant to Japan's Defense Buildup Program, which implies that they will include already-planned purchases. In addition, the United States confirms that for any future Section 232 tariffs imposed on pharmaceuticals and semiconductors, Japan will receive a rate no greater than that applied to any other country, offering some reassurance. It reiterates that the United States will not impose tariffs on Japanese aircraft and aircraft parts, as stated in the EO.

Broader Implications

The new documents have important implications for Japan, as well as for other countries. For Japan, these new documents help to reduce the uncertainty that has been causing tensions in U.S.-Japan relations since the July 22 trade deal announcement. The United States has now fulfilled its promise to reduce tariffs, and a concrete plan has been laid out for moving ahead with Japanese commitments under the framework agreement.

However, now that the terms of the arrangement are more transparent, the potential pitfalls have also become clearer. In exchange for tariff reductions, Japan has committed to a substantial amount of investment in the United States, as well as significant purchases of U.S. products. It is apparent that the United States and Japan are now at the start of a series of discussions over many individual investment deals, a process over which the U.S. government will exercise a great deal of control. Japan also has a voice in the process, but it will need to be proactive in shaping the kinds of projects that are considered by the U.S. investment committee to help ensure alignment with its own interests.

In addition, although the tariff reductions in the September 4 EO were welcomed by Tokyo, the new U.S. tariff rates are still substantially higher than they were before the start of the second Trump administration. These tariffs will undoubtedly hurt the Japanese economy, and they come at a time when the Japanese public is already deeply concerned about inflation, a weak yen, and other economic problems. Moreover, future tariffs are still a possibility. The fact that the United States has explicitly retained its right to raise tariffs if Japan chooses not to fulfill specific investment requests suggests that they will continue to be used as a source of leverage, and the Trump administration may decide to impose new tariffs that were not addressed in these documents. This will pose challenges for the Japanese government, whose current leadership is in a weakened position after two recent electoral defeats and in search of a successor to Prime Minister Shigeru Ishiba.

These documents also set a potential precedent for others, such as South Korea and the European Union, who have negotiated framework agreements with the United States that include investment pledges. The MOU establishes new procedures and committees for directing inbound U.S. investment that may be duplicated in other cases. These new mechanisms are further examples of the Trump administration extending the influence of the U.S. government into the private sector, as it did by acquiring a "golden share" in the Nippon Steel-U.S. Steel deal, taking a 15 percent cut of revenues from Nvidia and Advanced Micro Devices, Inc., in exchange for issuing export licenses, and securing a 10 percent stake in Intel.

In addition, these documents make it clear that the Trump administration is gradually trying to introduce more nuance into the original idea of "universal tariffs" by including potential exemptions for goods that the United States needs. In a separate EO released afterward on September 5, Trump authorized the Office of the USTR and the Department of Commerce to exempt a 37-page list of products from tariffs and granted them the discretion to reduce tariffs for "aligned partners" on a 72-page list of products. This reflects a growing recognition that greater refinement is needed to tailor these tariff agreements to avoid unintentionally harming the U.S. economy or U.S. consumers.

Finally, the September 4 EO alters the relative competitiveness of Japanese goods. The newly lowered tariffs on Japanese goods are now below those on some other foreign competitors. For example, the 15 percent reduction on Japanese automobile tariffs currently puts South Korean automakers at a relative disadvantage, since they still face 25 percent tariffs and do not know when their own tariff reduction to 15 percent might be implemented. As the United States negotiates deals bilaterally with its trade partners, each country's competitiveness is being redefined by its relative position to other exporting countries, which will continually shift as terms change moving forward.

Kristi Govella is senior advisor and Japan Chair at the Center for Strategic and International Studies in Washington, D.C.

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