Japan has begun deploying the first tranche of what is expected to become a sweeping investment wave into the United States following the landslide election victory last week of Prime Minister Sanae Takaichi’s Liberal Democratic Party.
The initial batch, worth about US$36 billion, is widely seen as the opening move in a much larger commitment that could eventually reach $550 billion, an amount Japan promised last July in exchange for Washington’s lowering of its “reciprocal” tariffs for Japanese goods from 25% to 15% last September.
“Our massive trade deal with Japan has just launched! Japan is now officially, and financially, moving forward with the first set of investments under its $550 billion commitment to invest in the United States of America,” US President Donald Trump says in a social media post.
He says the deal is a part of the United States’ historic trade deal to revitalize the American industrial base, create hundreds of thousands of American jobs, and strengthen the country’s national and economic security. He adds that the first batch of Japanese investment will include three major projects in strategic areas: oil and gas in Texas, power generation in Ohio and critical minerals in Georgia.
“The gas power plant in Ohio will be the largest in history, the liquefied natural gas (LNG) facility in the Gulf of America will drive exports and further our country’s energy dominance, and our critical minerals facility will end our foolish dependence on foreign sources,” he says, without mentioning China’s dominance in global rare earth supply.
Chinese commentators say the shift signals a new phase in economic realignment, arguing that China will be indirectly hurt by a strengthening trade and investment tie between the US and Japan in several ways.
A Hunan-based columnist writing under the pen name Xu Sanlang argues that the US-Japan agreement could accelerate the shift of global supply chains away from China toward the US and its allies.
“Japan’s pledge to invest $550 billion and expand purchases of US cars and agricultural products will strengthen American manufacturing and farming competitiveness,” he writes. “Since 2010, Japan has steadily reduced its reliance on China and moved investment and supply chains to Southeast Asia, the US and Europe.”
He adds that US tariffs have further encouraged Japanese firms to relocate production.
Trump’s tariffs are pushing Japanese companies to move factories to the US or Southeast Asia,” he said, warning the shift could produce three consequences:
- Japanese investment in China may decline;
- Chinese exports to Japan could face stronger competition as Japan buys more American goods;
- Chinese exports to the US may be squeezed by Japanese products facing much lower tariffs, especially in automobiles and electronics.
“The US trade deficit with China reached $279 billion in 2024, far higher than the $68.5 billion deficit with Japan,” Xu says, citing trade data to underline the pressure. “The US-Japan deal could further compress the room for China’s exports.”
“Cooperation on investment and LNG energy will also deepen the US-Japan strategic alliance,” he writes. “Washington is using tariffs to push allies to reduce trade with China, while Japan’s market opening and investment align with US policy. With US tariffs on Chinese goods at about 53.6% compared with roughly 15% on Japanese goods, it is clear that Washington is using differentiated tariffs to economically isolate China.”
A Jiangxi-based columnist writing under the pseudonym Wang Ye says the trade impact could emerge first.
“After the US-Japan trade agreement, Japan may adjust its trade policies toward the US, changing the competitive landscape with China in some sectors. For example, increased imports of US rice and other agricultural products could reduce Japan’s imports from other countries, including China,” Wang writes.
“If Japanese companies expand investment in the US, they may reduce investment and industrial transfers to China, affecting China’s import and export trade,” he says, adding that deeper US-Japan cooperation in key industries could marginalize China-linked supply chains and divert investment that might otherwise have gone to China.
Reciprocal tariffs
On April 2 last year, Trump announced new reciprocal tariffs of 25% on Japanese goods, as well as varying tariffs on other countries.
On July 23, the White House said the two countries had reached a trade deal under which Japan agreed to invest $550 billion in the US, while Washington would only impose a 15% tariff on imported Japanese goods.
Under the agreement, Japan promised to:
- Immediately increase imports of US rice by 75% and expand import quotas;
- Purchase $8 billion in US goods, including corn, soybeans, fertilizer, bioethanol and sustainable aviation fuel;
- Expand US energy exports to Japan and explore an offtake deal for Alaskan LNG;
- Buy US-made commercial aircraft, including 100 Boeing jets, and increase purchases of US defense equipment;
- Lift long-standing restrictions on US cars and trucks and approve US automotive standards in Japan.
After the US and Japan moved to strengthen economic ties, a new incident heightened political tensions between China and Japan. On November 7 last year, Prime Minister Sanae Takaichi said that any battleships or use of force against Taiwan could constitute a “survival‑threatening situation” for Japan, a legal threshold that could allow the country to activate its Self‑Defense Forces and potentially trigger US military support under the US‑Japan Security Treaty if Japan were attacked.
Beijing demanded that Takaichi withdraw the remarks, but she did not back down. On January 6, China announced tighter export controls on dual‑use items shipped to Japan. Media reports said China has imposed lengthy approval procedures on the shipment of critical minerals to Japan.
It is unclear whether Trump has put any pressure on Beijing, but Kyodo News reported on February 6 that China has approved several Japan-bound shipments. The approvals apparently came after Trump and Chinese President Xi Jinping spoke by phone on February 4.
A Shandong‑based columnist says Beijing approved niche metal exports to Japan on February 5, as the ban was supposed to last 90 days from November 7, the day Takaichi made her pro-Taiwan remarks. He says exports for civilian use are acceptable, but China will continue to restrict shipments to Japanese defense contractors.
A Zhejiang‑based writer says in his column titled “Yuanheng Defense” that China should not rush to retaliate against Japan but instead maintain countermeasures and wait for the situation to change. He says Beijing may compromise with Washington on tariffs, debt and climate issues while waiting for the US to eventually stop supporting Japan’s right‑leaning politicians.
He adds that China’s scale in new energy, artificial intelligence and quantum computing could limit Japan’s room to maneuver. In his view, Japanese firms may struggle under China’s export controls and could eventually pressure Takaichi to soften her stance.
Read: China plays rare-earth card on Japan, but keeps it subtle
Follow Jeff Pao on Twitter at @jeffpao3