US and Japan agree trade deal to circumvent worst of tariffs | Money News

The US and Japan have agreed a trade deal days ahead of the latest tariff deadline set by Donald Trump.

Under the terms of the agreement, rather than all Japanese goods being hit with a 24% tax on entry to the US, they will instead be subject to a 15% tariff.

Significantly, and unlike the US-UK deal, there is no cap on the number of Japanese cars subject to the agreed lower tariff. The levy on cars and car parts has been brought down from 25% to 15%, making it the first country to secure a reduction in the blanket 25% rate on vehicles.

Cars make up more than a quarter of all Japan’s exports to the US.

Japanese steel and aluminium are still subject to a 25% tariff.

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It’s just over a week until the 1 August pause on tariffs is due to end, itself a six-week extension to the 9 July 90-day freeze US President Trump announced in April.

It’s seen a win for all parties as Japan is a major trading partner of the world’s largest economy.

To make the deal happen, Japan agreed to a $550bn (£406bn) investment package of loans and guarantees from Japanese government-affiliated institutions in key sectors like pharmaceuticals and semiconductors.

Japan will also increase purchases of US agricultural products such as rice.

Market reaction

Markets welcomed the news.

In the US, the value of a dollar ticked up, and in Japan, the benchmark stock exchange, the Nikkei, gained sizably, and closed up more than 3.5%.

The index is comprised of many major carmakers, including Nissan, Honda, Mazda, Toyota, and Mitsubishi, which all rallied following the news.

Other Asian stock indexes closed up, including Korea’s Kospi, which rose nearly 0.44%, Hong Kong’s Hang Seng, which increased more than 1.6%, and Thailand’s SET index, which was up more than 2.3%.