President Donald Trump’s trade deal with Japan will hurt American families.
Heralded as a triumph by the administration, American families are hit with a 15% tariff tax on goods imported from Japan Although it is lower than the president’s blustering 25% tariff threat, it is a 6-fold increase from last year. American families and businesses will face higher costs as a result. The average American family can expect to pay a $1,500 annual tariff tax thanks to the new Japan tariff tax. This added burden slams American families still trying to get their feet underneath them after a tumultuous five years of shutdowns followed by the inflation sparked by a gusher of government spending and errant monetary policy. Even more troubling, the deal gives the president “power” to direct $550 billion of Japanese investment as a supposed “solution” to the trade deficit. Under any other administration, this would be called central planning.
A trade deficit created through voluntary exchange is not a problem to be “solved.” Americans buy Japanese cars, electronics and machinery. Japan uses some of those dollars to purchase products from us. The excess dollars (a “trade deficit”) flow back to the United States as Japan invests in businesses here and keeps interests rates low by purchasing government debt. In fact, Japan is our leading source of foreign direct investment (FDI), with $289 billion invested in 2016-2021 and more than $700 billion in aggregate – close to $8,000 per family of four. More than 900,000 Americans are employed at U.S. subsidiaries and affiliates of Japanese companies. Half of these investment dollars from Japan flow into American manufacturers.
Japanese companies in America operate 14 automobile assembly plants across seven states. Japanese investment breathed life into the automotive sector after decades of malaise and mismanagement. These new factories churned out more than 2.8 million vehicles in the United States in 2022. Japanese auto manufacturers now directly employ more than 107,000 Americans – with close to 2.2 million Americans additionally employed in intermediate jobs, “spin-off” jobs, and Japanese automobile dealers. The assembly line workers at non-unionized Toyota Japanese factories earn $34.80 an hour to start – close to 50% higher than the average hourly rate nationally for all assembly line workers. Treasury Secretary Scott Bessent boasts that Japan will “provide equity, credit guarantees, and funding for major projects in the U.S.” What a glaring failure to recognize that Japan is already Making America Great Again by investing “trade deficit” dollars literally in America. This “deal” poisons this process by yanking the power to direct these investment dollars away from the free market and placing it in Washington D.C.
Any student of history knows that the federal government will be more inefficient directing $550 billion of investment than the private sector. Central planners succumb to bureaucratic lethargy, political agendas, and failure to heed or even hear market signals. Freedom to trade and invest largely free of government interference helped this nation produce the most prosperous and socially mobile middle-class in the history of mankind. Per capita GDP in all but a single state (Mississippi) exceeds that of Germany, the wealthiest large European country. History is littered with examples of failed central planning, from Soviet factories to the threat of stagnation across the EU to China’s recent real estate bust.
True prosperity demands abandonment of central planning, even under Republican administrations. This trade deal with Japan is not a victory for American prosperity. Rather, it’s a betrayal of economic freedom along with a massive tax hike on American families.
