United made the sharper start and hit the front via a well-taken solo effort from Marcus Rashford before a sumptuous 26th-minute drive from Suso levelled matters.
With the Premier League giants understood to be closing in on a world-record move for Leicester City defender Harry Maguire, Victor Lindelof endured a poor outing and needed substitute Jesse Lingard to cancel out his own goal.
The scoreline after 90 minutes meant Benfica claimed the ICC trophy, having won all three of their games in the competition, and a flawless set of penalties only faltered when Daniel Maldini – son of Milan great Paolo Maldini – failed to beat David de Gea with the Rossoneri's fifth attempt, leaving James to dispatch his effort down the middle of the goal to secure a 5-4 triumph on penalties.
Ole Gunnar Solskjaer's side travelled to the Principality Stadium without Romelu Lukaku, while Paul Pogba missed the match due to a reported back spasm – the future of both players remaining the subject of heavy speculation.
Rashford was to the fore in a bright United start and, shortly after testing Gianluigi Donnarumma with a swerving 25-yard effort, the England forward was allowed to ease into the Milan box from the left and steered a deflected 14th-minute shot beyond the Milan goalkeeper.
United being more advanced in their pre-season preparations contributed to an apparent gulf between the sides early on, meaning Suso's brilliant strike from the edge of the area to equalise came against the run of play.
De Gea saved impressively seven minutes before half-time when Suso's floated ball into the box evaded Krzysztof Piatek and skidded towards the far corner.
The United keeper then denied the Poland striker having driven him wide after Lindelof clumsily lost his footing.
Lindelof was also involved in a manner he would care to forget when Milan hit the front with an hour played as he diverted Samu Castillejo's header into his own net.
Luke Shaw almost found a spectacular second for United when he met a cross from Ashley Young on the volley – his ambitious attempt flying just wide – before Lingard joined Rashford in finding weakness on the right-hand side of the Milan defence to slot home.
Impressive cameos from Angel Gomes and Mason Greenwood almost guided United to victory in normal time and both were on target in the shoot-out alongside Lingard and Young.
But another teenager, Maldini, was not as sure in his work as De Gea dived to his left and kept out a tame effort – gifting James a chance for a moment to remember that he grasped.