Likely U.S. Tariff Scenario for Japan

Since the announced of all U.S. tariffs on Japan, the Japanese government has opened asked the U.S. to fully remove them but unfruitful so far. With Trump's latest remark, it seems unrealistic for Japan to expect tariff level to return to zero. However, given the prospect of LNG and U.S. Steel investment, there is a good chance Japan will receive a similar treatment like the UK. Whether the Japanese side will accept is another story and we currently see two potential scenarios of tariff changes when trade deal negotiation gains traction. In the past week, the rhetoric from Japan has changed and seems to suggest they are ready for an agreement after the G7 summit on minimal tariffs.

The major block from the agreement is on Japan auto and agriculture tariffs. While other items are also under a 25% tariff, the first ones are costing the Japanese economy circa 17-24 billion USD. However, with more than a million Japanese cars sold in the U.S. annually, Trump is unlikely to let this subject go easily, especially after the UK example. Given, the Nippon Steel investment and potential LNG deal, Japan will likely land on the minimal tariff list.

The likely scenario for Japan will see all items to be under the 10% tariffs and open doors to further negotiation, similar to the UK trade deal.. There is also a chance for Trump to give a tariff free quota for Japanese autos and agricultural products if Japan is committed to purchase LNG from the United States. On the side, there maybe some small items to be completely tariff free for both sides to bring a "win" home for leaders politically. After sealing the deal between U.S. and Nippon Steel, there is potential for an easing of foreign investment from Japan, though the attractiveness for Japanese business will be unknown given the political uncertainty.