Roula Khalaf, the Editor of the Financial Times, has curated her favorite stories in this insightful weekly newsletter, highlighting significant global economic developments.

On Tuesday, Japan made headlines by becoming the first major global economy to establish priority tariff negotiations with U.S. President Donald Trump. This move underscores Japan's critical role as Washington's largest creditor and investor, ultimately resulting in a remarkable 7 percent surge in stock prices for companies listed on the Tokyo Stock Exchange.

This considerable bounce in the equity market nearly offset the extensive sell-off of Japanese shares that occurred the previous Monday. The turnaround followed a 25-minute telephone conversation between President Trump and Japan’s Prime Minister Shigeru Ishiba, during which both leaders expressed their commitment to opening negotiations on trade tariffs.

After the call, Trump took to his Truth Social platform to voice his frustrations regarding trade practices, stating, “Japan has treated the US very poorly on trade. They don’t take our cars, but we take MILLIONS of theirs. Likewise, Agriculture, and many other ‘things.’ It all has to change, but especially with CHINA!!!” This statement reveals the U.S. administration's broader strategy of reevaluating trade relationships with key partners, particularly in light of ongoing tensions with China.

In preparation for these negotiations, Ishiba appointed Ryosei Akazawa, Japan’s economic revitalization minister, as the chief negotiator. Officials in Tokyo are eager to commence talks “very soon,” as Japan seeks to safeguard its automotive sector, which is a cornerstone of its economy.

On the U.S. side, the delegation will be headed by Treasury Secretary Scott Bessent, in collaboration with U.S. Trade Representative Jamieson Greer. Bessent mentioned in an interview on Fox News that he anticipated Japan would be prioritized in negotiations, crediting their swift engagement on the matter.

Akazawa addressed reporters, noting that Bessent’s involvement indicates a strong interest from the White House in the economic issues under his purview. This has led to speculation among investors that forthcoming negotiations may not only address tariffs but also the contentious dollar-yen exchange rate, which has become a growing concern for the Trump administration.

Japan, often referred to as Washington's closest ally in Asia, was taken aback last week when Trump announced a staggering 24 percent tariff on Japanese imports, alongside a 25 percent levy on vehicles. Prime Minister Ishiba described these tariffs as a “national crisis” for Japan, highlighting the gravity of the situation for the nation’s economy.

Experts have raised alarms over the potential consequences of these tariffs for Japan. Despite Japan's historical investments in U.S.-based manufacturing, it remains heavily reliant on exports, benefiting greatly from trade with minimal friction. The looming tariffs could disrupt this delicate balance.

During their conversation, Ishiba reminded Trump of Japan's status as the largest foreign investor in the United States, cautioning that the threat of tariffs could jeopardize the flow of corporate investment. Takeshi Yamaguchi, a Japan economist at Morgan Stanley MUFG Securities, noted that the ongoing tensions between the U.S. and China could inadvertently create a favorable environment for U.S.-Japan negotiations.

Yamaguchi suggested that Japan should propose a strategy to alleviate the U.S. trade deficit, which the current administration views as problematic. This could involve increasing imports of U.S. agricultural products, defense equipment, and energy sources. Yamaguchi also emphasized the importance of coordinating with the U.S. to manage potential depreciation of the yen.

In a further demonstration of U.S. willingness to engage, Trump announced on Monday a national security review concerning Nippon Steel’s proposed $15 billion acquisition of Pennsylvania-based U.S. Steel. This review, expected to be led by the Treasury Department, aims to deliver a recommendation to Trump within 45 days.

This proposed takeover was initially blocked by President Joe Biden in January as one of his last acts in office. However, Trump has previously indicated his opposition to a complete takeover, raising questions about the future of foreign investment in critical U.S. industries.

Despite the uncertainties, Nippon Steel's executives have been actively negotiating with U.S. Commerce Secretary Howard Lutnick regarding the framework and conditions for a deal that would allow the Japanese corporation to take a majority stake in the American steelmaker. On Tuesday morning, shares of Nippon Steel saw a notable rise, climbing as much as 10.5 percent.

In a statement, Nippon Steel expressed optimism, stating that they “look forward to a timely resolution so that we can begin making our planned investments that will position U.S. Steel to be a leading global steel producer.” This sentiment reflects the company's commitment to navigating the complexities of international trade while continuing to seek opportunities for growth.