(Bloomberg) — Japan risks having to pay higher tariffs if it doesn’t fund US President Donald Trump’s investment recommendations, according to a document fleshing out a $550 billion funding initiative agreed by the two nations in July.
Trump will pick investment projects based on recommendations from an investment committee led by US Commerce Secretary Howard Lutnick, according to a memorandum of understanding for the investment mechanism signed by Lutnick and his Japanese counterpart Ryosei Akazawa in Washington on Thursday.
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The investment committee will incorporate input from Japan via a separate panel, with investments to be made up to Jan. 19, 2029, the memorandum said, a time frame that coincides with Trump’s presidential term.
“The idea is to build supply chains within the United States,” Akazawa said in Washington on Thursday evening. “Therefore, it is only natural that the US side’s intentions, and more specifically, President Trump’s intentions, are strongly reflected.”
The memorandum provides more details of how Japan will be obligated to supply funds for Trump’s investment choices than has so far been indicated by Japanese officials. Akazawa said there was no change from July in the details agreed.
The investment fund forms part of a trade deal agreed with the US that limits universal duties on Japanese goods and sectoral tariffs on the auto sector to 15%. The Trump administration has included similar funding arrangements in other trade deals too, including the US agreement with South Korea.
While the US-Japan deal was struck on July 22, the auto tariffs had remained at 27.5% while existing duties were still being charged on top of the new tariffs imposed this year. Trump signed an executive order Thursday to lower the duties to 15% and stop the stacking up of tariffs, a move that delivers embattled Japanese Prime Minister Shigeru Ishiba a limited success as he tries to hold on to power in Tokyo amid calls for him to resign.
The memorandum states that the US does not intend to raise tariffs provided Japan faithfully implements it and doesn’t fail to provide funding. The US president would determine the tariff rate should that option be taken in the case of Japan choosing not to fund a project.
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Japan will need to make funds denominated in dollars available within 45 days of an investment project being presented for review, the memorandum states. Separate Special Purpose Vehicles will be set up for each investment.
“Each Investment SPV will be managed and governed by the United States or its designees in the capacity of a general partner,” the memorandum stated.
Akazawa reiterated Thursday that Japan will contribute to the funding initiative partly using loan guarantees. A senior Japanese government official who briefed the press in Washington also said Akazawa’s previous explanation of how the investment fund would work remains the same.
“In short, we will provide investments, loans and loan guarantees for up to $550 billion. That remains the same,” he said.
Akazawa has largely played down the size of actual investments that Japan is likely to make via the new setup, which will involve the government-backed Japan Bank For International Cooperation and Nippon Export and Investment Insurance.
Of the total, investment will comprise 1% or 2% and the US and Japan will split the profits of that investment at a ratio of 90-10, he said in July following the deal’s announcement. The Japan side has cited JBIC and NEXI as the government-backed organizations that will be leading financing for the projects.
—With assistance from Akira Matsui.
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