US-Japan Deal Launches US$36 Billion Investment in Key Sectors

Japan will invest about US$36 billion in US oil, gas, and critical mineral projects under the first phase of a bilateral trade agreement with the United States, a move aimed at strengthening economic security and industrial capacity in both countries, according to US President Donald Trump and Japanese Prime Minister Sanae Takaichi. The investment package includes a natural gas-fired power plant in Ohio, a deepwater crude export facility in Texas and a synthetic industrial diamond manufacturing site in Georgia.

These projects represent the initial phase of a broader US$550 billion commitment Japan made under the trade agreement signed last year. In exchange, Washington agreed to reduce tariffs on Japanese exports, including automobiles. “The scale of these projects are so large, and could not be done without one very special word, tariffs,” Trump claimed.

The initiative seeks to expand US energy production, secure supply chains for critical materials and reduce reliance on foreign sources, particularly China. Most of the initial funding will support a power plant in Portsmouth, Ohio, described by the administration as the largest natural gas-fired generating facility in US history. The project, expected to generate 9.2 gigawatts of electricity annually, will be operated by SB Energy, a subsidiary of SoftBank Group.

Additional investments include a deepwater crude export facility off the Texas coast and a US$600 million synthetic industrial diamond manufacturing site in Georgia. The facility aims to establish full domestic production of synthetic diamond grit used in advanced manufacturing and semiconductor production. “(This) will end our foolish dependence on foreign sources”, said Trump.

US Commerce Secretary Howard Lutnick said the investments are structured to deliver mutual benefits. “We will no longer rely on foreign supply for this essential material.  Japan is providing the capital. The infrastructure is being built in the United States. The proceeds are structured so Japan earns its return, and America gains strategic assets, expanded industrial capacity, and strengthened energy dominance.”

US–Japan Trade Framework

The United States and Japan announced a bilateral trade and investment agreement in July 2025 that establishes a 15% tariff on most Japanese imports and includes Japan’s US$550 billion investment pledge across strategic sectors such as semiconductors, energy, and critical minerals. The framework, negotiated after months of tariff tensions, aims to deepen economic cooperation, address trade imbalances, and strengthen supply chains.

The agreement followed US trade actions targeting large goods trade deficits. In April 2025, US President Donald Trump declared a national emergency and imposed 10% reciprocal tariffs on imports from most trading partners, including Japan, under the International Emergency Economic Powers Act of 1977. Japan, which ran a US$69 billion goods trade deficit with the United States in 2024, was initially set to face a 25% country-specific tariff.

Separately, the administration imposed sectoral tariffs under Section 232 of the Trade Expansion Act of 1962, which authorizes import restrictions on national security grounds. In 2025, these included 25% tariffs on vehicles, auto parts, and trucks, and 50% tariffs on steel, aluminum, and copper. 

The automotive tariffs were a major concern for Japan due to the sector’s significance in bilateral trade. Additional Section 232 investigations are ongoing, and in January 2026, the administration introduced measures targeting semiconductors and processed critical minerals, which could affect Japanese industries.

To implement key provisions of the trade agreement, the administration issued Executive Order 14345 in September 2025. The order applies a 15% tariff on Japanese imports without stacking on existing duties.

Japanese automotive products are subject to this 15% rate, while Section 232 tariffs on steel, aluminum, and copper remain at 50%. Aircraft covered under the WTO Agreement on Trade in Civil Aircraft, excluding unmanned types, are exempt from tariffs. 

Other products, including natural resources and generic pharmaceuticals, may receive duty-free treatment. Tariffs on Japanese pharmaceuticals and semiconductors are capped at levels “no greater than that applied” to other countries.

Japan also agreed to expand US purchases, including accelerating rice imports, US$8 billion annually in agricultural goods such as corn, soybeans, fertilizer, and bioethanol, and US$7 billion in annual energy purchases. The deal also provides for eased regulations on US-safety-certified vehicles and subsidies for US-made clean energy cars. The Commerce Secretary is tasked with monitoring Japan’s compliance and may increase tariffs if commitments are not met.

A memorandum of understanding signed on Sept. 4, 2025, details Japan’s US$550 billion investment pledge. Investments are to focus on strategic sectors, including semiconductors, pharmaceuticals, metals, critical minerals, shipbuilding, energy, artificial intelligence, and quantum computing, with all investments due by January 2029. 

Funding will be provided through loans, guarantees, and other mechanisms from institutions such as the Japan Bank for International Cooperation.

An investment committee chaired by the Commerce Secretary will recommend projects, while the US Investment Accelerator will oversee execution. Profit-sharing is structured so that returns are split equally until Japan recovers its allocation, after which 90% of profits go to the United States and 10% to Japan. 

Strategic Alignment and China Concerns

The investment package reflects growing alignment between Washington and Tokyo on energy security, industrial supply chains and critical mineral development. Both governments aim to strengthen domestic production and reduce exposure to geopolitical risks.

China dominates global mining and processing of rare earths and other critical minerals essential for industries ranging from energy to automotive manufacturing, and past export restrictions have heightened tensions with the United States. US officials have repeatedly emphasized reducing dependence on Chinese supply chains, with the industrial diamond project forming part of that strategy.

The announcement also comes amid ongoing diplomatic tensions between Japan and China over Taiwan. Although Takaichi did not directly reference China, the projects are expected to enhance economic security and strengthen ties with the United States. Recent restrictions on rare earth exports to Japan have further strained relations, even as Japanese exports overall continue to grow, partly driven by increased shipments to China.