Scott Bessent's Got A Japanese Blind Spot

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As Matt Blunt, president of The American Automotive Policy Council, puts it,“any deal that charges a lower tariff for Japanese imports with virtually no US content than the tariff imposed on North American-built vehicles with high US content is a bad deal for US industry and US auto workers .”

For automakers, there's a bit of a deja-vu-all-over-again dynamic here. As Blunt explains, the trade framework Trump negotiated with the UK did more to lower tariffs to 10% on some luxury cars built in England, such as the Rolls-Royce, Bentleys, Land Rovers, Jaguars and Aston Martins, than aid Detroit. The risk of Trump World reneging has the team of Japan's top tariff negotiator Ryosei Akazawa anxious.

There's also been controversy over a practice called“stacking,” whereby one 15% tariff is piled atop existing tariffs. After considerable back and forth, Japan claims Team Trump has agreed not to stack tariffs. For now, at least. All this is the product of a hastily assembled tariff deal with no written materials.

The bottom line is that“without a written agreement between Japan and the US, no promise or claim of mutual understanding is secure until it appears in an Executive Order,” says Richard Katz, who publishes the Japan Economy Watch newsletter.

Lawmakers are deeply worried, too, that Trump could simply have a bad day and decide the US and Japan should negotiate a new, new tariff arrangement with its closest ally in Asia.

“Washington is just randomly shooting, and they are shooting some like-minded countries from behind,” says Taro Kono, a member of Japan's House of Representatives, who's often mentioned as a future prime minister.

And that US$550 billion that Japan is expected to invest in the US at Trump's direction? What Trump calls a“signing bonus” to be handed over to the White House – it's”our money,” as he said – Tokyo views as more of an aspirational endeavor with a vague timeline, perhaps over a number of years.

Rather than forking over a pile of cash, Japanese Prime Minister Shigeru Ishiba's team is eyeing a series of loans, grants and financial guarantees run through government-linked organizations like the Japan Bank for International Cooperation and Nippon Export and Investment Insurance.

Suffice to say, the logistics of this are going to take lots of back and forth and loads of additional negotiation sessions. In the meantime, Ishiba's inner circle hopes the US courts will rule Trump's tariffs are unconstitutional, enabling Japan to avoid this whole mess.

Also, Tokyo will watch closely to see how South Korea proceeds with the $350 billion it agreed to deploy in the US and what the European Union does about the $600 billion worth of US energy purchases Trump is demanding as part of its deal.

None of these really matters in the end if Trump and Bessent don't get China to the table . Trump World's stuck-in-1985 policy mix has missed that in our globalized era, where supply chains matter more than national borders, bilateral trade deals mean less than multilateral ones.

That is, unless Trump manages to get one with China's nearly $18 trillion economy. Combined, the US and China represent $45.5 trillion of gross domestic product (GDP).

As tariff pain weighs on the US economy, Trump's challenge is to convince his base that the inflation, market chaos and extreme uncertainty of the last several months were somehow worth it.

The only way, really, is a big, beautiful China trade deal that Trump can tout as proof he's still got some“art of the deal” game left. Xi is playing hard to get, though, scoring another 90-day extension on talks.

As Xi's China complicates the US Treasury's 2025, Bessent is having to do some Japan maintenance. One avenue is prodding the BOJ to raise rates in lieu of its inability to cajole the US Fed to lower them. Another: soothing nerves in Tokyo about its $1.1 trillion exposure to Trumponomics.

Japan is by far the biggest holder of US Treasury securities. That's a rough place to be when Trump is working to morph the Fed into the People's Bank of China by stripping it of its independence.

Trump, of course, has threatened to fire Powell for not bowing to his demand for big rate cuts. Bessent, commenting on how much Fed easing he wants, argues that“we should probably be 150, 175 basis points lower” from the current 4.25% to 4.5% target range.