What the new US-Japan trade agreement means for other American allies?

The new trade deal between Washington and Tokyo—in which Japan secures lower tariffs in exchange for committing to invest in the US and opening its long-protected agricultural sector—reveals that even long-standing US allies are not exempt from President Donald Trump’s efforts to reshape the global trade paradigm with his “America First” approach, according to analysts.

In contrast, analysts note that China possesses greater bargaining power due to its integrated role in the international value chains that have developed over the last few decades, and its dominance in rare earth elements serves as a major bargaining chip in its trade war with the US.

On Tuesday, Trump announced a trade framework that includes a 15% tariff on products imported from Japan in exchange for Tokyo’s commitment to invest $550 billion. Analysts have warned that this decision could trigger a capital outflow from Japan. Additionally, Japan will open its market to more trade, including trucks, rice, and certain other agricultural products.

A new era in trade relations

“It is very clear that allies deserve special treatment, but it is also very clear that they will not get a free pass,” said Alfredo Montufar-Helu, a senior adviser at C-suites in China. “Even key allies like the UK and Japan have not been able to secure a complete removal of tariffs. This signals a fundamental shift in global trade dynamics, moving away from the pre-Trump 2.0 era.”

Montufar-Helu told the South China Morning Post that this shift is likely to lead to a restructuring of trade relationships and supply chains as businesses aim to minimize costs and diversify risks.

In a note published Wednesday, Kang Min-joo, a senior economist for South Korea and Japan at ING Economics, stated, “The US-Japan deal will create more pressure on other major Asian exporters to secure a better deal… More agreements with Asian exporters need to be made before August 1.”

Kang added that the US might aim to finalize the agreement before August to encourage other trading partners to join negotiations, but the inclusion of defense spending in the deal could delay the timeline.

In April, Trump announced he would impose a 24% tariff on products imported from Japan as part of a “reciprocal” tariff package, threatening to increase this rate to 25% if an agreement was not reached by August 1.

South Korea has not yet announced any trade deal with the US, but intensive negotiations are reportedly underway ahead of next weekend.

According to Reuters, Japanese Prime Minister Shigeru Ishiba stated on Wednesday, following the announcement of the framework agreement, that his country would import more US rice under the existing duty-free quota, emphasizing that Japan “has made no sacrifices in its agricultural sector.”

There were reports that Ishiba would announce his resignation by the end of next month. According to the Japanese press, Ishiba denied these rumors on Wednesday.

According to Reuters, Japan and the US also agreed to reduce the current 25% tariff on Japanese cars to 15%.

‘The situation is different when it comes to China’

US Treasury Secretary Scott Bessent was quoted on Tuesday as saying that the US could increase its tariff revenue to $300 billion annually, or about 1% of GDP.

“While the US has a significant advantage in trade negotiations with various countries, the situation is completely different when it comes to China,” said Montufar-Helu.

Bessent noted that Beijing and Washington will hold a third round of high-level trade agreement talks in Sweden next week, following previous discussions in Geneva and London, adding, “we hope China will withdraw this production surplus.”

A spokesman for the Chinese Ministry of Commerce said on Wednesday that Vice-Premier He Lifeng confirmed the talks will take place from July 27-30, and both sides will discuss “economic and trade issues of mutual interest” in line with the important consensus reached during a phone call between the two heads of state last month.

Montufar-Helu said he expects the next round of trade negotiations to reflect the complexity of previous talks, given that China and the US each hold leverage over the other.