US-Japan Trade Agreement Update on Tariff Reductions and $550 Billion Investment Fund

Read our alert from the July 22 announcement here.

Since then, the United States and Japan have continued to negotiate the arrangements, and on September 4, US Commerce Secretary Howard Lutnick and Japan’s Economic Revitalization Minister Ryosei Akazawa signed a seven-page memorandum of understanding (MOU) regarding Japan’s anticipated $550 billion investment program in the United States (collectively, the Japan fund).

The MOU’s signing coincided with President Trump issuing a new executive order (EO) laying out terms of both the phased reduction of selected US tariffs on Japanese goods.

As of the date of this alert, the MOU has not been officially posted on either the official US or Japanese government websites, although it has been widely reported in the press and on X. The EO and MOU provide an outline of the operative provisions, including the establishment of a $550 billion fund to facilitate large-scale investments in the United States. Statements by US and Japanese officials since the MOU was signed, however, indicate that there may continue to be unresolved issues that clients with exposure to US-Japan trade flows, should monitor closely.

Purpose and Rationale of the MOU

The fund, according to US officials, was a crucial factor in securing President Trump’s agreement to lower tariffs on Japanese goods from 25% to 15%. On March 31, President Trump issued an EO establishing the United States Investment Accelerator, to be managed by the US Department of Commerce. The purpose of the Accelerator is to “dramatically expand its assistance to companies seeking to invest and build in the United States …” The Japan fund appears to be part of this strategy, as discussed further below.

Key Terms of the Japan Fund

We expect further developments regarding the Japan fund, given the lack of clarity and statements by the principal negotiators since the MOU was signed.

• For instance, the Trump Administration maintains that it retains “absolute discretion” to determine which US projects receive Japanese funds, publicly citing high-profile possibilities such as the Nippon-US Steel joint venture and certain SoftBank-backed infrastructure initiatives. However, Japanese officials have noted that the MOU establishes an investment committee, chaired by the Secretary of Commerce, which is responsible for recommending and overseeing investments. Reportedly before making recommendations to President Trump, the investment committee must first consult with a group composed of US and Japanese representatives.
• The parties also disagree on the form of Japan’s capital contribution. US officials speak in terms of an immediate cash infusion, whereas Japanese sources describe a mix of direct loans, loan guarantees, and credit-enhancement facilities provided by public institutions such as the Japan Bank for International Cooperation and Nippon Export and Investment Insurance. However, if Japan declines to fund investments in the fund, the United States may impose higher tariffs.
• The White House has supplemented its public statements on the MOU, with a fact sheet summarizing its principal commitments. In addition, the US and Japanese governments issued a joint statement that updates Japanese commitments to purchase $8 billion per year in US agricultural products and $7 billion per year in energy products. The statement also clarifies that Japan’s purchases of defense equipment from the United States will be made pursuant to Japan’s Defense Buildup Program and will include semiconductors.

Tariff Rates and Refunds Under the MOU

Reciprocal Tariffs on Japanese Imports

Reciprocal tariffs will incorporate the Most Favored Nation (MFN) rate (i.e., general rate of duty applied to Japanese products) and be retroactive to August 7. This rate is set at a flat 15% rate for all products with an MFN of lower than 15%, and at the corresponding MFN without any additional reciprocal tariff when the MFN is 15% or greater. US Customs and Border Protection (CBP) has requested that importers wait on requesting refunds for the retroactive period until the process for claiming refunds is announced. Separately, via EO 14346, published on September 10, the president adjusted the exemptions on reciprocal tariffs by adding 39 Harmonized Tariff Schedule (HTS) codes. The additions include certain critical minerals, pharmaceutical and chemical materials, bullions, metal products, and magnets. The president also removed eight HTS codes from the exemptions, including certain aluminum hydroxide, resin, and silicone materials. EO 14346 also introduced a new annex covering hundreds of HTS codes relating to natural resources, pharmaceuticals, aircraft, agricultural industries, and other sectors. These codes could be eligible for exemption from reciprocal tariffs in the future. The order also establishes procedures to modify tariffs following the conclusion of implementing tariff agreements, such as the US-Japan Agreement. In general, products that are exempt from reciprocal tariffs would not be subject to the 15% reciprocal tariff imposed under the US-Japan Agreement.

Automotive

The agreement will reduce US tariffs on Japanese automobiles and parts from 25% (Section 232 auto tariff) to 15% starting within seven days of the publication of the EO in the Federal Register (approximately by September 17).

Civil Aircraft

Certain civil aircrafts and parts falling under the World Trade Organization’s Agreement on Trade in Civil Aircraft are exempted from reciprocal tariffs and Section 232 tariffs on steel, aluminum, and copper starting within seven days of the publication of the EO in the Federal Register (approximately by September 17).

Exempt Categories

Certain natural resources, as well as generic pharmaceuticals, their ingredients, and chemical precursors may be granted a 0% tariff at the discretion of the Secretary of Commerce.

While the September 4 EO provides clarity on certain tariff rates and refund periods, there are various operational details that need to be completed for claiming the refunds and lower rates. It is expected that more details will come out near September 17, as well as thereafter as the agreement continues to evolve. Importers should continue to:

• Track Entry and Liquidation Dates: Maintain detailed records of all entries of Japanese-origin goods, including entry summaries, tariff classifications, and duty payments, especially for entries made on or after August 7, which may be eligible for retroactive tariff adjustments or refunds.
• Monitor CBP and Federal Register Guidance: Closely monitor CBP Cargo Systems Messaging Service messages and Federal Register notices for updates on refund procedures, implementation details, and any special program indicators or eligibility requirements.
• Preserve Documentation for Preferential Treatment: Retain all origin documentation, certificates, and supporting records to substantiate claims for preferential tariff treatment or refunds and be prepared for potential CBP audits.
• Identify and Prepare for Refund Opportunities: Proactively identify entries that may be eligible for refunds once procedures are announced and consult with customs counsel regarding post-summary corrections or protest strategies.
• Monitor Sector-Specific Developments: For sensitive sectors such as automotive, steel, aluminum, copper, semiconductors, critical minerals, and pharmaceuticals, track both US and Japanese regulatory announcements for changes in tariff rates, quota allocations, and compliance requirements.
• Engage in Ongoing Monitoring and Advocacy: Stay engaged with legal counsel and government relations contacts to advocate for clear, timely, and equitable implementation, and to remain informed about further negotiations or changes to the agreement.

Japanese negotiators are pressing for a companion EO that would guarantee Japanese exporters the lowest available US tariff rate on pharmaceuticals and semiconductors, effectively locking in a MFN rate for these strategic sectors. The joint statement confirms that for any future Section 232 tariffs imposed on pharmaceuticals and semiconductors, Japan will receive a rate no greater than that applied to any other country.

Political Changes in Japan and Broader Implications

The political context in Tokyo remains fluid. Prime Minister Shigeru Ishiba delayed his resignation announcement, following his party’s poor showing in recent elections, until after the MOU was signed to avoid disrupting negotiations. His resignation has started a leadership contest within the ruling party and raises the prospect of a snap election. Any incoming cabinet will inherit the immense responsibility of implementing the MOU, and a change in leadership could recalibrate Japan’s negotiating posture on both tariffs and outbound investment.

These Japanese deal structures may also set a precedent for other countries negotiating framework agreements with the United States that include investment pledges. The September 4 EO also alters the competitiveness of Japanese goods, putting other nations at a disadvantage until similar tariff reductions are negotiated. As the United States negotiates deals bilaterally, each country’s competitiveness will continually shift as terms change moving forward.

Conclusion

While the MOU, EO, and joint statement represent a significant milestone in US-Japan economic relations, their most consequential elements — funding mechanics, tariff preferences for sensitive sectors, and the decision-making structure that will govern project selection — are still not firmly established. The new mechanisms and procedures set forth in these documents may serve as a model for future agreements with other countries.

Companies with supply chain exposure, prospective infrastructure sponsors, and financial institutions considering participation in Japanese financing vehicles should continue to track subsequent implementing measures, including any EOs, committee charters, or formal notices in the Federal Register.

The ArentFox Schiff International Trade group and the Japan desk will continue to monitor developments and provide timely updates as new information becomes available. For further information or assistance with compliance strategies, please contact the authors of this alert or your regular AFS attorney.