Why Trump’s Race for a Quick Trade Deal With Japan Will Come Up Short

Until Jan. 23, 2017, the United States had a major free trade agreement with Japan and 10 other countries called the Trans-Pacific Partnership. But on his first day in office, President Donald Trump withdrew from the TPP, which had been signed just a few months earlier by President Barack Obama as his signature piece of trade policy. Trump was fulfilling one of his first campaign promises, having railed against the deal for years. At the signing of his Executive Order pulling the U.S. out of the TPP, Trump declared that it was a “great thing for the American worker, what we just did.”

American farmers, who are already footing most of the bill for Trump’s “America First” trade policies, probably don’t feel that way today. Japan and the other Pacific Rim countries made minor tweaks to the agreement, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, and began implementing it at the end of last year. Without the U.S. in it, the deal is creating problems for many American exporters. 

The White House is now scrambling to conclude a bilateral trade agreement with Japan to offset the problems that U.S. beef, grain and other exporters are facing as a result of Japan’s tariff cuts that apply exclusively to its CPTPP partners. Japanese Prime Minister Shinzo Abe had initially resisted Trump’s demands for bilateral trade talks, clinging to hope that a future president could rejoin the CPTPP. Faced with Trump’s threat of steep tariffs on Japan’s automobile exports, however, Abe caved and the negotiations formally began this month.

After shielding the Japanese auto industry’s exports to the American market, Abe’s other priority in talks is to protect the bargains struck in the CPTPP and facilitate an eventual U.S. re-entry to that major multilateral deal. To do that, Abe has insisted on a goods-only agreement, with no new rules in any area but digital trade, where American and Japanese interests are largely aligned. Beyond that, Japanese negotiators are signaling they will resist inserting provisions from NAFTA 2.0, the rebranded U.S.-Mexico-Canada Agreement, such as stricter rules of origin for automobiles and stronger intellectual property protections for pharmaceuticals. Those elements would likely be opposed by other CPTPP partners and could make it more difficult for the U.S. to join the agreement in the future, given differences with existing CPTPP terms.

Japan is mainly interested in securing the removal of the U.S. tariffs on steel and aluminum, imposed by Trump on supposed national security grounds, and avoiding new restrictions on its lucrative automobile exports to the United States. The Trump administration, in turn, is aiming to get concessions from Japan that would reduce the large bilateral deficit, especially in the automobile trade, and steep tariff cuts on U.S. agricultural products. Reports from the initial round of talks, however, suggest that the Trump political team is more interested in getting a deal done quickly—before his reelection campaign kicks into high gear—than maximizing Japanese concessions.

A deal with Japan would likely accomplish little more than undoing some of the damage Trump himself inflicted when he withdrew the U.S. from the TPP.

Trump obviously wants to sell a Japan trade deal as a “win,” but the White House is scrambling for a quick deal because the president’s rural base is taking the biggest hit from being left out of the CPTPP. Japan is a major market for U.S. agricultural exports, despite Japan’s relatively high tariffs in that sector. Food and other agricultural exports account for around 10 percent of total U.S. exports, but more than a quarter of exports to Japan. In recent years, around one-fifth of total U.S. meat and grain exports have been destined for that one market. 

As a result of the CPTPP, farmers from Canada, Australia and New Zealand are all gaining a significant advantage in the Japanese market. Japan’s tariffs on beef, for example, are dropping from 39 percent to 10 percent. While Japan is phasing in those tariff cuts over a number of years, American farmers are already feeling the effects. In just the first few months of the deal, Canadian beef exports tripled and Japanese imports overall from CPTPP partners went up 60 percent. In addition to the CPTPP, Japan also concluded a bilateral trade agreement with the European Union that went into effect in February. That means American wine and cheese exporters will face increased competition from European exporters, as well as those from CPTPP parties.

To offset those negative effects, some in the Trump administration had suggested going for an early agreement just on agriculture. But that would violate international trade rules that require bilateral and regional trade agreements to cover “substantially all trade.” Japan has been steadfast in ensuring that any agreement it signs is consistent with World Trade Organization rules.

Japanese press reports suggest that the Trump administration, in seeking a quick deal, has already conceded on some of Abe’s key priorities, including that the cuts in agricultural tariffs not go beyond what Japan agreed to do under the CPTPP. American negotiators also appear to have given up on the idea that Japan could “voluntarily” restrain its automobile exports, another provision that would violate WTO rules.

Negotiators are reportedly hoping to use several upcoming meetings—starting with Abe’s visit to the U.S. later this week, followed by Trump’s trip to Japan in late May—to make enough progress that a deal might be done by the time Japan hosts the Group of 20 summit in June.

Matthew Goodman, a former White House adviser on international trade and economics in the Obama administration, speculates that a quick deal could be done that includes three main things: agricultural trade liberalization mimicking what Japan agreed to in the CPTPP and EU deals, no new U.S. tariffs on Japanese automobile exports, and easier certification rules for U.S. automobile exports to Japan. To further mitigate Trump’s ire over trade deficits, Japan could also take steps to reduce the bilateral trade deficit by increasing its purchases of U.S. natural gas and military equipment.

But even if a possible bargain is struck with Japan, its emerging outlines suggest that it would accomplish little more than undoing some of the damage Trump himself inflicted when he withdrew the U.S. from the TPP. If a deal precludes the U.S. imposing steep tariffs on Japanese cars, it could also have the added benefit of preventing more self-inflicted injuries on the American economy. These days, that is about as much as one can hope for from a Trump trade initiative.

Source: World Politics Review