The first six months of the Trump 2.0 administration have indeed been a rollercoaster of events for the American society. Starting with his unfriendly immigration policies and onslaught on illegal immigrants and his toxic international diplomacy, he initiated an unprovoked trade war with the rest of the world in pursuit of his “Make America Great Again” (MAGA) agenda which sent shockwaves to stock markets across the world with the U.S stock market taking a major hit due to the uncertainties about the outcome of the trade war and the reciprocal hikes in tariffs for American goods imposed by their trading partners.
However, the dust seems to be settling as the tariff hikes turned out to be just a ploy by Donald Trump to drag trading partners to the negotiating table in a bid to negotiate better terms of trade for the U.S. While hiking the tariffs on imports, Trump was also granting tax concessions and other incentives to companies that are interested in investing in the U.S. This has resulted in a plethora of fresh investments running into trillions of dollars that are being committed to the U.S economy. With the U.S. market being the largest consumer market in the world, it is too enticing to be ignored by investors just because of high import tariffs.
The initial pledges of new investments came from domestic sources, where Apple, Meta, and NVIDIA led the way by pledging trillions of dollars worth of investments in AI infrastructure, and this was soon followed by the Gulf States that are seeking to diversify away from being oil-dependent. As a result of this and other opportunities available in the huge U.S market, they also pledged to collectively invest trillions in the fast-growing AI industry, which is being anchored by the US technology industry.
However, the real evidence that Trump might just be winning his tariff wars came recently with the announcement by the Japanese Prime Minister that the Island country would be investing $550 billion in the U.S economy as a fallout of the trade deal they just agreed with the U.S government.
In exchange for the U.S reducing the tariffs on Japanese exports to the U.S from 25% to 15%, which applies to automobiles, machinery and other industrial products except for steel and aluminium tariffs which remain unchanged at 50%, Japan pledged to invest $550 billion in the U.S targeting sectors such as semiconductors, energy, AI and automobiles. The deal will also ensure that Japan increases the imports of U.S goods such as agricultural products and automobiles, thus securing more markets for U.S goods in the process.
The deal will also facilitate cooperation between the U.S and Japan in the area of energy production as it provides for the U.S and Japan to collaborate on the development of Liquefied Natural Gas (LNG) assets and, more specifically, a joint venture in Alaska to export LNG to Asia. The deal aims to create hundreds of thousands of jobs in the U.S and boost the U.S economic growth while strengthening economic ties between both nations.
While the deal is certain to boost U.S. Manufacturing, other benefits of the deal could accelerate the trend of “nearshoring” and reduce dependency on Asian and European production hubs, benefiting U.S. manufacturers. The deal could also encourage other countries that have been having a stand-off with the U.S to go to the negotiating table to seek better terms of trade. Japan’s agreement to open its market to U.S. agricultural products promises to boost American agricultural exports and reduce the U.S. trade deficit with Japan. The deal also reflects a commitment to deepening the longstanding U.S.-Japan alliance and building the next chapter of U.S.-Japan cooperation.
While the successful negotiation of a trade deal between the U.S and Japan is indicative that more trade deals are in the offing that would boost investments coming into the U.S economy and open more markets for U.S products especially in the agricultural sector, the Trump administration’s hostile policy towards unregistered immigrants who constitute a major part of the work force especially in the agricultural sector may constitute a stumbling block towards increasing productivity and achieving their export objectives.
In conclusion, the recent U.S.-Japan trade deal marks a significant milestone in the economic relationship between the two nations. With Japan’s $550 billion investment in the U.S. economy and increased market access for American goods, this agreement has the potential to create hundreds of thousands of jobs and boost U.S. manufacturing, agricultural exports, and competitiveness in key sectors. While challenges and uncertainties surrounding the tariff structure and implementation remain, the deal reflects a commitment to deepening the U.S.-Japan alliance and promoting economic cooperation. As the agreement unfolds, its impact on the U.S. economy, trade dynamics, and the global market will be closely monitored, potentially setting a precedent for future trade agreements.
Oshobi, a development economist, management consultant, and author, writes from Lagos, Nigeria.