Japan, Vietnam, EU contest terms of US tariff deals behind the scenes

TOKYO – US President Donald Trump has chalked up a spate of headline-grabbing trade deals as the clock ticks down to his

Aug 1 “reciprocal” tariffs deadline.

But cracks are emerging over their precise terms amid confusion over their timing, implementation and investment conditions. Critics have reportedly described the agreements as “flimsy napkin deals”.

The devil lies in the nitty-gritty, and leaders from Asia and Europe have openly contradicted the US on the terms of agreement.

For Vietnam, The Straits Times understands that the proposed rates announced were not even what Hanoi had agreed on. 

Mr Trump touted a deal with Hanoi on July 2, proposing a 20 per cent “reciprocal” tariff and a 40 per cent rate for trans-shipments. Unlike Japan and the European Union, Vietnam believes it would be counterproductive to oppose Mr Trump publicly and directly, so both sides are now quietly hashing things out.

“The strategy here is to work on the definition of goods that are deemed to be trans-shipped, not to change the headline number of 40 per cent itself,” a source with knowledge of Vietnam’s ongoing trade talks with the Trump administration told ST. 

“Ultimately, we hope to be able to persuade the White House that it is a fact that the Chinese are manufacturing products that form the bulk of the goods that we make. It is not fraud, but simply how the supply chains work,” the person added.

For Japan, a deal was struck on July 22 for the US to

lower the “reciprocal” tariff rate from 25 per cent to 15 per cent,

and car levies from 27.5 per cent to 15 per cent.

As part of the deal, Mr Trump said Japan pledged US$550 billion (S$710 billion) in investments as a “signing bonus”, with the US to rake in 90 per cent of the profits.

With the EU, the US agreed on July 27

to halve tariff rates to 15 per cent,

with the bloc committing an additional US$600 billion in investments in the US.

For both agreements, there is no clear start date on their implementation. Politicians, economists and analysts are struggling to unmuddy the waters of what exactly had been agreed on.

In the EU, where French and German leaders are among those who have soured on the deal, Bloomberg cited officials as saying that the announced agreement was only the first step in a long-drawn process for trade negotiators to iron out a legally binding text.

For Japan, chief trade negotiator Ryosei Akazawa even said that Tokyo would forgo a formal legally binding document, lest it hold up the deal’s implementation.

But the absence of any signed document, and differing understandings with the US over what had been agreed, is turning up the heat on embattled Prime Minister Shigeru Ishiba.

Mr Ishiba is

fighting for his political survival

after his ruling coalition was routed in consecutive polls, losing its majority in both Houses of the Diet. 

On July 28, he reiterated that he would not resign, as a political vacuum would only jeopardise an agreement that “serves both countries’ national interests, while protecting what we should protect”.

One day later, he announced a task force to oversee the proper implementation of the deal.

Among its members was Economy Minister Yoji Muto, who said at a regular news conference: “With the deadline in mind, we urge the US to take necessary measures, such as by issuing a presidential order to reduce the tariffs, as soon as possible.”

There is, however, a fair share of critics – even within the ruling Liberal Democratic Party – over the lack of clarity and how the agreement was struck.

Former economic security minister Sanae Takaichi, who is gunning to replace Mr Ishiba in the top job, wrote on social media platform X: “In the absence of any written agreement, we don’t know exactly what has been guaranteed.”

She went on to highlight the discrepancies in both countries’ statements.

For example, while Mr Trump boasted that Japan agreed to “buy billions of dollars worth of military and other equipment”, such a commitment was nowhere in a July 25 Japanese fact sheet of what was agreed on.

But the biggest minefield stemmed from the supposed US$550 billion in investments, to be made across nine strategic sectors such as chips, pharmaceuticals, steel and shipbuilding. 

“What Japan did is they brought down their tariffs. They gave us US$550 billion upfront, 100 per cent. We get 90 per cent, they get 10 per cent,” Mr Trump had said.

US Commerce Secretary Howard Lutnick described Japan as “the banker”, with a White House fact sheet saying that Japan would invest as “directed by the United States to rebuild and expand core American industries”.

The Japanese document instead said Japan pledged “up to” US$550 billion – and not the precise figure. The US would be assured 90 per cent of profits and Japan, 10 per cent, “proportionate to their respective financing contributions and risk burdens”.

Rather than Japan taking orders from the US, Mr Akazawa stressed that the government-linked Japan Bank for International Cooperation would strictly review the projects it would finance. He added that between 1 per cent and 2 per cent would be actual investment, with the remainder funded by loans or loan guarantees.

Further, while US Treasury Secretary Scott Bessent has threatened that Japan’s “reciprocal” tariff rate would boomerang back to 25 per cent if the deal was not followed faithfully, Mr Akazawa denied that any punitive measures were ever discussed.

Ms Takaichi said: “The uncertainty is only growing.”

A source privy to the trade talks told ST that Japan was girding for even more turbulence ahead, given that “there are voices within the US administration that it had been too lenient on Japan”.

Geoeconomics expert Saori Katada of the University of Southern California told ST: “Although the vibes after the Japan-US deal last week seem to be that it was a ‘massive’ agreement and an absolute success, I fully doubt so.”

She observed that the US would have been in a hurry to land a good deal with Japan, a sizeable economy and an Indo-Pacific security ally whose political climate is increasingly volatile.

As Mr Trump turned up the heat on Japan over

alleged market barriers in cars and rice

, the US could score headlines by playing up Japan’s compromises.

Japan agreed to allow US cars to be imported without the need for additional safety tests, and to review subsidies promoting electric vehicles. It also promised to buy more US rice within the tariff-free import quota of 770,000 tonnes.

The deal gave Mr Ishiba a policy victory, as he had long described the tariffs as a “national crisis”.

While the 15 per cent rate was still markedly higher than before Mr Trump announced the sweeping “Liberation Day” tariffs, the glass-half-full view of the July 22 deal was of how low it was compared with other countries – with Mr Trump unlikely to exempt any country or region from these “reciprocal” tariffs.

“It sounds like a public relations ploy on both sides, especially in the US,” Dr Katada said, adding: “I think the global uncertainty will not end with the current series of ‘trade deals’, especially when Trump sees that others can be pushed around.”

Meanwhile, criticism continues to swirl over the purported US$550 billion investment pledge, which main opposition leader Yoshihiko Noda warned would be a “minefield”.

Nomura Research Institute executive economist Takahide Kiuchi, a former Bank of Japan policy board member, said statements from the US make the deal feel “as though Japan’s sovereignty is being infringed upon”.

Dr Stefan Angrick, head of Japan and frontier markets at Moody’s Analytics, said: “The deal is unlikely to be the final chapter in a saga that has bruised Japan’s economy.”