Deciphering the Art of America’s Trade Deals

For U.S. President Donald Trump, the rush of countries worldwide to seek exemptions from U.S. tariffs rolled out since he took office has been heralded as a success. In that light, the White House’s decision to reverse course on its own tariff plans only a week after they were unveiled was touted as part of a grand strategy to reach a deal. Tariffs of 10 percent on all countries still remain as of late April, but the varied “reciprocal tariff” rates imposed on individual countries – including those across the Indo-Pacific – are under a 90-day pause, in effect until July 8, 2025.

China remains the exception to the pause. Washington further increased its tariff rate on Chinese goods to 145 percent, while Beijing retaliated by imposing tariffs on U.S. imports that now amount to 125 percent. While China has declared that it has no intention of increasing the rate against the United States further, it has not expressed any intention of backing down in capitulation either. There is no clear end in sight to the brinksmanship between the world’s largest economies, and no indication of uncertainties that have persisted over global trade ending any time soon.

The Trump administration’s China policy remains unclear, but the end goal of its trade policy seemingly remains unshaken. Boosting foreign investment, expanding U.S. domestic capabilities, and bringing back manufacturing across industries still are the longer-term goals. While turmoil in the financial markets led the administration to postpone its country-specific tariff plans, with the exception of China, investors’ concerns about the seismic shifts in U.S. trade policy have seemingly had limited effect in altering the administration’s longer-term economic vision.

But while stock prices and bond yields may not have had the impact on Trump that investors would have expected, the prospect of getting a better deal with foreign governments may sway the administration to redirect, if not alter, its course. That was certainly the hope from Japan when its trade negotiator arrived in Washington in mid-April.

The Japanese delegation, led by Economic Revitalization Minister Akazawa Ryosei, made Japan the the first major country to enter trade negotiations with the United States since April 2. The fact that Trump himself unexpectedly joined the initial negotiations – together with Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer – was a clear indication to all of the president’s personal interest in the outcome of the negotiations. At the same time, it was welcomed by the Japanese as an opportunity for direct engagement with the leader who has been driving U.S. trade policy since taking office.

Aizawa’s meetings with his U.S. counterparts were closely watched by other advanced economies in both Asia and Europe, as these governments too find themselves in a similar situation to that of Tokyo. Should Japan prove able to strike a deal with the United States to make its exemption to additional tariffs permanent, then that would be the model other governments would want to emulate.

As of this writing in late April, Japan and the U.S. had yet to announce a deal, but Reuters reported that an “interim framework” was within reach. The fact that there was a second round of negotiations – this time featuring Japanese Finance Minister Kato Katsunobu –  just over a week after Akazawa’s trip can be seen as a positive step forward.

Looking ahead, though, the goal of the negotiations will not simply be limited to striking a tariff deal. Japan is the single largest cumulative foreign direct investor to the United States, accounting for 15 percent of total FDI with $783 billion as of the end of 2023. Moreover, Japanese companies are doubling down on their commitment to invest in the United States.

Telecommunications group Softbank is part of the $500 billion Stargate Project together with OpenAI and Oracle to bolster AI infrastructure in the United States. Meanwhile, carmaker Honda reportedly has plans to relocate some of its production from Mexico and Canada to the United States in direct response to the 25 percent tariffs that are being imposed by the Trump administration on foreign automobiles.

Japan’s strength will be its ability to press upon the role its FDI has had in bolstering the U.S. economy over the decades, and its potential to beef up key U.S. industries moving forward. The fact that Japan is stepping up its defense spending and purchasing more military equipment from the United States will not be lost in the discussions, nor will the fact that Japan is one of the biggest holders of U.S. debt.

But as Washington pushes for Japan and other advanced economies to invest more in the United States and buy more U.S. products, it needs to pursue its other longer-term goal, namely to remain an innovation nation. Just as China has been seeking to graduate from being the factory to the world, the United States should not look to bring back nonstrategic industries to U.S. shores. The United States’ competitive edge has been to attract the best and brightest from around the world so that it can develop new industries and achieve technological breakthroughs. The true strength of the United States will be whether it can continue to be the magnet of top talent and harness that knowledge so that it remains competitive or even peerless.