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Abe and Trump take baby steps on trade

Kyodo

The leaders of Japan and the United States spoke positively of their decision Friday to set up a dialogue on bilateral trade, but forthcoming negotiations may cost Prime Minister Shinzo Abe political capital at home.

Stopping short of declaring the start of bilateral free trade agreement negotiations, Abe and President Donald Trump agreed to establish a “bilateral dialogue framework” co-helmed by Deputy Prime Minister Taro Aso — who doubles as finance minister — and Vice President Mike Pence.

Under the banner of his “America First” agenda, Trump pulled the U.S. out of the 12-party Trans-Pacific Partnership trade agreement shortly after taking office on Jan. 20. With its largest signatory by gross domestic product gone, the TPP cannot come into force under its current terms.

That was galling news to Abe, who expended a great deal of effort to convince key agricultural and industry lobbies to agree to the TPP’s wide-ranging tariff cuts in exchange for the promise of enhanced export opportunities.

“Both Japan and the United States have a great chance to expand free trade and investment in the Asia-Pacific region, which is achieving ever more rapid growth,” Abe said at Friday’s news conference. “But that must be done in a fair manner.”

Takumi Sakuyama, a former TPP negotiator for the Japanese government who is now an associate professor of agriculture at Tokyo’s Meiji University, said it is “risky” but “inevitable” for the Abe administration to respond to a U.S. request to start negotiations on a bilateral trade deal.

“Bilateral discussions are going to give an advantage to the larger economy — the U.S. — and Mr. Trump’s record of complaints about Japan’s automotive trade, beef tariffs and currency manipulation indicates he will … drive a hard bargain,” he said.

On the bilateral security front, Trump thanked the people of Japan for hosting the U.S. military and mirrored the language of the Abe administration in calling the bilateral alliance “the cornerstone of peace and stability” in the Asia-Pacific region.

Trump’s remarks on the campaign trail last year had raised concerns that his administration might reduce its commitment to defending Japan unless the island ally coughed up more of the costs of stationing U.S. troops there.

According to the joint statement, the leaders agreed that the United States will strengthen its presence in the region and Japan will “assume larger roles and responsibilities in the alliance.”

While a Japanese government official quoted Abe and Trump as agreeing at a working lunch Friday that the Japan-U.S. trade friction of the 1980s is “a thing of the distant past,” Japanese negotiators may find Trump’s fairly consistent America First creed gives them little wiggle room.

Trump has taken issue with the size of the U.S. trade deficit with Japan and called on it to knock down nontariff barriers to U.S. auto imports, scoring points with supporters. In agriculture, U.S. beef and pork farmers’ lobbies have urged Trump to pursue a bilateral deal with Japan to compete with Australia, which enjoys lower tariffs on its beef exports to Japan under an economic partnership agreement.Trump told a rally during his election campaign that he will deal with Japanese tariffs on U.S. beef.

“I will take care of that situation so fast. In one day that situation will be equalized,” he was quoted by U.S. media as saying.

Abe, meanwhile, is tasked with finding the best time to dissolve the House of Representatives for yet another election.

Mixed results at a much-hyped summit with Russian President Vladimir Putin in Japan in December are thought to have dissuaded Abe from dissolving the chamber last month.

“At the end of the day, to maintain support from Japanese voters, (Abe) has to promote economic growth and protect Japanese interests including those of its big automakers,” said Rich Ellings, president of the National Bureau of Asian Research, a nonpartisan U.S.-Asia policy think tank based in Washington.

“Japan has a very difficult time truly reforming domestically and opening up its market fully — that’s why the negotiations in the TPP included some remarkable things, unprecedented for Japan,” Ellings said.

It is still in Japan’s strategic interest to keep alluding to the need to keep the ideas behind the TPP alive, said Geoffrey Gertz, a post-doctoral fellow at the Brookings Institution in Washington.

Some of the pact’s smaller signatories have suggested changing the deal’s terms so it can go into force without the United States. A joint statement released by Abe and Trump after the summit said Japan will continue to “advance regional progress on the basis of existing initiatives,” hinting at Japan pursuing an 11-party TPP.

With bilateral trade negotiations between major economies tending to take years, Abe may end up allowing the start of talks toward a Japan-U.S. pact while hoping to not be around to see it concluded, Sakuyama said.

Abe’s Liberal Democratic Party is expected to change its rules next month to extend the term limits for party presidents, meaning he could remain prime minister through 2020.

“My expectation is that the negotiations will not finish before Mr. Trump’s second term or before Mr. Abe’s term expires … and (Abe) will be able to keep promising Japanese farmers he will protect tariffs on rice and other key farm products,” Sakuyama said.

But even if Abe can dodge the political expense of concluding a bilateral deal, the bottom lines of the major exporters who fuel his growth strategy are still vulnerable to Trump’s promised renegotiation of the North American Free Trade Agreement, which Abe “can do nothing about,” Sakuyama said.

An executive at automotive brake pad maker Nisshinbo Holdings Inc. said Wednesday Trump’s stance has prompted the company to scrap a plan to build a plant in Mexico.

Uncertainty remains on how Trump might tackle NAFTA, with key officials in the Trump administration, including Commerce Secretary nominee Wilbur Ross, yet to be confirmed by the Senate.

For the time being, Abe and his delegation have done all they could in Washington, the analysts say. If nothing else, the diversion of trade issues to the ministerial dialogue framework will buy Tokyo some time to make crucial decisions.