Japan expects only 1% to 2% of $550 billion US fund to be investment
The Trump administration has touted the deal with the Asia country as a potential model for others
[TOKYO] Japan expects only 1 to 2 per cent of its recently agreed upon US$550 billion US fund to be in the form of actual investment, with the bulk of it being loans, according to the nation’s top chief negotiator Ryosei Akazawa.
At the same time, Tokyo would save roughly 10 trillion yen (S$87 billion) through lower tariff rates in its deal with America, 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 (Jul 26) night. Of the total, investment would be worth 1 per cent or 2 per cent 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.
The fund is a centrepiece of the deal announced by the two sides that will impose 15 per cent 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. The comments come as officials from countries with deals with the US sift through the terms to explain to the public what they entail.
“It’s not that US$550 billion in cash will be sent to the US,” Akazawa said. “By letting the US have 90 per cent of the profits rather than 50 per cent, 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 are wrong.”
For the loans provided through the programme, Japan will simply be collecting the interest payments, and for the loan guarantees, if nothing happens, Japan will also be just collecting fees, Akazawa said. “For that part, Japan’s just making money,” he said.
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Akazawa also clarified that the investment programme will not 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 will lower tariffs after the document is created,’” Akazawa said. In order not to 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 that he expects universal tariffs on Japan’s shipments to be lowered to 15 per cent on Aug 1, while he said he wanted the car tariffs to be cut to 15 per cent 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 per cent tariffs on most of its exports, with the EU pledging to invest US$600 billion in the US. BLOOMBERG
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