Japan expects only 1-2 percent of its recently agreed upon US$550 billion US fund to be in the form of actual investment, with the bulk of the funds to be dispersed via loans, the nation’s top chief negotiator Ryosei Akazawa said.
At the same time, Tokyo would save roughly ￥10 trillion (US$68 billion) through lower tariff rates in its deal with the US, he said.
The US$550 billion investment framework will be a combination of investments, loans and loan guarantees provided by financial institutions backed by the Japanese government, Akazawa said on public broadcaster NHK on Saturday night. Of the total, investment would be worth 1 percent or 2 percent and the US and Japan would split the profits of that investment at a ratio of 90-10, he said. Japan had originally proposed a 50-50 ratio, he added.
Photo: Stefani Reynolds, Bloomberg
The fund is a centerpiece of the deal announced by the two sides that will impose 15 percent tariffs on Japanese cars and other goods. But the details given by Akazawa suggest the Japanese may end up giving up much less than at first glance.
“It’s not that US$550 billion in cash will be sent to the US,” Akazawa said. “By letting the US have 90 percent of the profits rather than 50 percent, I think Japan’s loss will be at most a couple of tens of billions of yen. People are saying various things, such as ‘You sold out Japan,’ but they’re wrong.”
For the loans provided through the program, Japan will simply be collecting the interest payments, and for the loan guarantees, if nothing happens Japan will also be collecting just the fees, Akazawa said. “For that part, Japan’s just making money,” he said.
Akazawa also clarified that the investment program won’t be only supporting Japanese and US firms. As a potential example, he cited a Taiwanese semiconductor firm building a factory in the US.
“We’d like to put the US$550 billion in place during President Trump’s term,” Akazawa added.
Further details of the implementation of the US-Japan deal remain unclear, including when the new tariff rates would take effect and when the new investment vehicle would kick off. There's been no joint document signed by both sides for the deal, although the White House has published a fact sheet.
“If you say something like, ‘Let’s create a joint document,’ they will say, ‘We’ll lower tariffs after the document is created,’” Akazawa said. In order to not lose time, “we will demand that they issue an executive order to lower tariffs as soon as possible, regardless of a document.”
Last week, Akazawa said he expects universal tariffs on Japan’s shipments to be lowered to 15 percent on Aug. 1, while he said he wanted the car tariffs to be cut to 15 percent as soon as possible without specifying a date.
The Trump administration has touted the deal with Japan as a potential model for others. On Sunday, the US and European Union agreed on a deal that will see the bloc face 15 percent tariffs on most of its exports, with the EU pledging to invest US$600 billion in the US.
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