Trump Wants Japan To Fund His Government's Ambitious Government Spending. What's In It For Them?

The Trump administration has big plans for the massive pot of money promised by Japan and other countries as part of their trade deals with the United States. But the eye-popping sums, as well as the White House’s demands for near-total control of the money, are raising doubts that the funding will ever materialize.

The White House’s July handshake trade agreement with the Japanese government included a pledge from Tokyo to invest $550 billion — more than 10 percent of the country’s GDP in 2024 — in the U.S. over President Donald Trump’s term. In September, the Japanese government released a memorandum of understanding providing more details on the agreement, which startled close observers, other foreign leaders and even some in Japan.

Essentially, Tokyo is pledging to invest public funds — rather than marshal private money, as the European Union has promised — and would allow the Trump administration almost unfettered control over how it is spent.

At least one leading candidate to become Japan’s next prime minister in the country’s ruling Liberal Democratic Party’s imminent leadership election is threatening to reopen the negotiations, and Japanese businesses are already balking at one investment the administration looks likely to propose. South Korea, which is under pressure from the White House to ink a similar deal, is also pushing back.

"I'm surprised, given the language in there, that Japan agreed to any of this,” said a former Biden administration official, who, like others quoted in this piece, was granted anonymity to speak candidly. “The U.S. will ultimately be who controls these funds."

The memorandum is just one piece of a broader push by the Trump administration and the Commerce Department to extract investment pledges from foreign governments and companies by wielding the threat of tariffs at historic levels. The president and Commerce Secretary Howard Lutnick are aiming to then funnel that money into sectors Trump views as strategically vital — from reviving U.S. shipbuilding and launching a long-delayed Alaska natural gas pipeline to expanding semiconductor production.

The deal with Japan offers the clearest window yet into how that approach might work in practice, spelling out a $550 billion commitment that would give Washington wide latitude over how the funds are deployed. The non-binding agreement will test whether the administration can effectively will its own investment arm into existence as it seeks to dramatically expand the U.S. government’s role in the private sector.

But the details have also drawn plenty of blowback, raising questions as to when — and if — it will ultimately be finalized.

“It’s an MOU, so it’s more official than what they had before, but less official than a formal trade agreement,” said Kristi Govella, Japan chair at the Center for Strategic and International Studies.

The results of Japan’s Oct. 4 parliamentary leadership elections could send the two countries back to the drawing board. Takaichi Sanae, the country’s former minister for Economic Security and one of two leading candidates to take over as the country’s prime minister, has suggested she might want to reexamine the terms of the deal.

Some Japanese companies, meanwhile, had hoped to use already promised investment to count toward the government’s $550 billion pledge, Govella said.

The agreement's structure is also raising concerns in the business community that the Trump administration will try to force Japan to pay for U.S. projects that have struggled to attract private investment. Exhibit A: a $44 billion liquefied natural gas export project in Alaska that has struggled to find investors since it was first proposed more than a decade ago.

"We want to invest $100 billion and finally unleash the American oil and natural gas that we have in Alaska," Lutnick said in a September television interview.

If these foreign investment funds become reality, Lutnick would be in position to make that happen — with other countries’ money. According to the terms of the Japan memo, the funding would be overseen by a new office in the Commerce Department, called the United States Investment Accelerator.

Decisions on which projects to invest in would be determined by an investment committee, headed by the Commerce secretary. Tokyo would not have representatives on that committee but would participate in a “consultation committee” that will have 45 days to decide if Japan wants to fund a project. If it doesn’t fund a project, the administration can reimpose tariffs on the country, the agreement states.

Industry insiders and analysts have called the Alaska LNG project too expensive to become profitable. The Japanese have been loath to directly invest in or sign commercial supply contracts with the project backers since it was first proposed.

If the Trump administration invests some of the billions it receives from Japan in the project and pressures Japanese companies to sign contracts to take natural gas from it, it could tie them to a potential boondoggle kept on life support by the U.S. government.

Go Katayama, an LNG industry expert at Kpler and former Shell LNG employee, predicts the Japanese government won’t say “no” directly to the Trump administration, but will instead draw out the process as long as it can and strive not to make any firm commitments.

“Japanese utilities have expressed skepticism about the project’s economics,” Katayama said. “The most likely outcome is symbolic participation—such as letters of intent or limited offtake agreements—rather than firm equity commitments. The government may encourage engagement to signal cooperation, but utilities will almost certainly draw out the process without committing serious capital.”

Japanese company representatives at a natural gas industry convention in Europe last month expressed the same sentiments, U.S. industry executives told POLITICO. Besides not needing the gas, Japanese companies don’t want to be tied to a project that could halt construction as soon as Trump leaves office, said one executive, who was granted anonymity to discuss private conversations.

“All the Japanese are trying to do is stall and get out of this,” this person said of the attitude toward the Trump administration’s attempts to tie them to the Alaska LNG project. “They’re just finding ways to kick the can down the road.”

Japan's Ministry of Economy, Trade and Industry, the section of Japan's government that has discussed with U.S. government officials the possibility of the country's private sector investing in U.S. energy projects, said that talks about Alaska LNG are still ongoing.

"METI and Japanese companies have held regular exchanges of views with U.S. officials to understand necessary information, such as the progress of the project, the timing of LNG production, and its economic viability, and we would like to continue these discussions with U.S. officials that will benefit both Japan and the United States," a METI spokesperson told POLITICO.

And Glenfarne Companies, the firm developing the LNG project, said it is confident the project will go through.

"Alaska LNG has strong economics and is commercially compelling without requiring any government subsidies,” Glenfarne spokesperson Tim Fitzpatrick said. “Government support to accelerate the project is always welcome and would receive full consideration."

The White House is projecting confidence that Japan’s government will uphold the terms of the MOU, writ large.

"We expect our trading partners, including Japan, to abide by the commitments they made as part of trade deals with the Administration,” said a White House official, granted anonymity to discuss internal expectations. "The president reserves the right to adjust tariff rates if any party reneges."

It’s also using the agreement to pressure other trading partners to agree to similar arrangements, starting with South Korea, which agreed in July to invest $350 billion in the U.S. in exchange for a lower tariff rate.

“The Koreans either accept that deal or pay the tariffs,” Lutnick said in an interview on CNBC last month, nodding to investment terms that Japan agreed to in its deal with the U.S. “Black and white, pay the tariffs or accept the deal.”

South Korean leaders, however, have balked at the administration’s demands, arguing that using public funds to pay for the investments would crater the country’s economy.

"We are not able to pay $350 billion in cash," South Korea's national security adviser Wi Sung-lac said on Channel A News, a Korean television station, last week.

Taiwanese leaders also soundly rejected a demand, floated by Lutnick, to manufacture half of their semiconductors in the U.S. in exchange for lower tariffs. Taiwanese officials denied that idea has been part of ongoing trade negotiations between the two countries, after Trump hit the self-governing island with a 20 percent tariff in August.

It’s all part of an effort by Trump’s Wall Street-stacked Cabinet to take a more direct role to boost domestic investments, with both foreign and domestic money. Shortly after taking office, Trump promised to create an External Revenue Service that would collect tariff revenue so the executive branch could use it at its own disposal.

Trump also signed an order directing the administration to explore creating a sovereign wealth fund — which would allow the government to take a direct stake in businesses, similar to countries like Finland and Taiwan.

Both efforts have failed to come to fruition — the External Revenue Service devolved into a turf war over who would control the money, while a sovereign wealth fund would likely require an act of Congress, as well as the legal guardrails that would come with any legislation that would need to be approved by a majority in both chambers.

Instead, the trade agreement model offers the administration more flexibility — and Lutnick more control — using the threat of tariffs for greater control over a pool of foreign cash.

“The way they are doing this as kind of a foreign money slush fund managed exclusively, practically speaking, by political appointees of the Commerce Department isn't going to have a lot of guardrails,” said Peter Harrell, who served as former President Joe Biden’s senior director for international economics.

“If the Biden administration had thought about doing this, there would have been a ton of internal concern [that] we're going to be denounced as Chinese communists [in] the United States,” Harrell said.