Business | ANALYSIS

Trump-Abe trade deal helps U.S. farmers and staves off auto tariffs

Bloomberg, Reuters, Kyodo

The U.S.-Japan trade deal, agreed in principle on the sidelines of the Group of Seven summit in France, spells out a big win for the U.S. that would slash Tokyo’s tariffs on American beef, pork and other farm products, and a small win for Japan as it delayed for now the threat of additional levies on Japanese auto exports to the U.S.

Prime Minister Shinzo Abe and U.S. President Donald Trump announced the agreement Sunday on the sidelines of the G7 summit in Biarritz, France, following a bilateral meeting earlier in the day. In announcing the deal, Trump also said Japan would purchase large quantities of U.S. wheat and corn.

“If you say ‘win-win,’ it’s a capital letter ‘Win’ for the U.S. and a small-letter ‘win’ for Japan,” said Ichiro Fujisaki, a former Japanese ambassador to the U.S. The deal would put the U.S. back in line with its rivals for Japan’s agricultural market in terms of tariffs, a position Washington would already enjoy had Trump not rejected an earlier multilateral trade deal.

“In Japan’s case, it’s a small win plus nonnegative assurance that no unilateral measures will be taken by the U.S., like on limiting car importations or some relations with security issues,” Fujisaki said. While Japan kept the threat of tariffs at bay, it didn’t get a removal of existing auto tariffs in exchange for its farm concessions, nor a public promise not to impose higher car levies.

It was Trump’s threat of punitive tariffs on Japanese auto exports that spooked Abe into agreeing last September to start bilateral trade talks with the U.S. Trump has in turn come under pressure from U.S. farmers, reeling from the trade war with China, who have also been hobbled by the tariff disadvantage in the Japanese market compared with competitors from signatories of the Trans-Pacific Partnership regional trade deal he rejected.

“We’ve agreed in principle,” Trump said. “We’ve agreed to every point.” He also referred to a “massive” purchase of wheat and a “very, very large order of corn” that he said would happen quickly. Trump said there would be no change to U.S. tariffs on Japanese cars.

The countries have reached consensus on “core elements” and were aiming to sign a deal during United Nations meetings in September, Abe said. The prime minister said that agricultural product purchases were a possibility, adding that crop pests had resulted in the need for “emergency support” to enable the private sector to buy American corn.

“If we are to see the entry into force of this trade agreement, I’m quite sure that there will be the immense positive impact on both the Japanese as well as American economies,” Abe said.

While the proposed deal may provide Trump with a fillip as he heads into his re-election campaign facing rising tensions with China, the initial reaction in Japan was mixed. Some officials in Tokyo have said the country shouldn’t give up its leverage over U.S. farmers without substantial concessions, and Japanese trade agreements generally require the Diet’s approval.

“As I expected, Japan gave ground on agriculture and didn’t win anything on autos,” former Prime Minister Yukio Hatoyama, an opponent of Abe’s long-ruling Liberal Democratic Party, said on Twitter. “This kind of obsequious diplomacy makes Abe happy, and hurts the people.”

Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo on Monday it wasn’t true that Japan had been “steamrollered” by the U.S. and added that he didn’t think punitive tariffs would be applied to Japan.

While refraining from commenting directly, Suga said the two countries’ leaders had confirmed, including at a summit in September, that Washington would not impose higher tariffs on auto and auto parts while trade talks were under way.

“Japan and the U.S. have negotiated based on the joint statement last September. And related ministers agreed based on that, so it was very valuable,” Suga said.

Whether or not the threat of higher tariffs on autos has been removed is key to evaluating the deal, according to Junichi Sugawara, a senior research officer for Mizuho Research Institute Ltd. “Without knowing that, it’s too early to say whether this will be a good agreement for Japan,” Sugawara said.

Some Japanese farmers breathed a sigh of relief that the tariff cuts will not be deeper than those under the TPP deal.

“It’s good that TPP-levels will be the limit,” said a farmer in Obihiro, Hokkaido, whose farm has about 5,500 cattle.

Under the TPP, which the United States pulled out of in 2017, Japan will gradually lower its 38.5 percent tariff on beef to 9 percent.

Others, however, expressed concern that the deal will hurt Japan’s farm sector.

“This will definitely have an impact on farm producers (in Japan),” said a person working for an agricultural cooperative in Kagoshima Prefecture, the country’s largest producer of beef.

The person, who asked to remain unnamed, called on the government to impose safeguards against a potential surge in U.S. farm imports that might hurt domestic production.

U.S. Trade Representative Robert Lighthizer said the proposed deal would open markets to $7 billion of American products including ethanol, as well as beef, pork, dairy products and wine. He said tariffs on some Japanese industrial products would be reduced, but that these wouldn’t include cars. The proposed agreement also includes a clause on e-commerce, he said.

The farming provisions of the deal won some early praise in the U.S., with the National Pork Producers Council and Senate Agriculture Committee Chairman Pat Roberts, of Kansas, among those welcoming a deal they said would put American agriculture on a level playing field with the 11 TPP-member nations.

Agriculture Secretary Sonny Perdue said removing the trade barriers would allow greater sales of U.S. farm products in Japan. Some in Japan said that was an acceptable price to pay.

“If we’re being realistic, the U.S. had been waving the 25 percent auto tariff card,” said Atsushi Takeda, chief economist at Itochu Research Institute Inc. “Japan’s managed to avoid that, there are probably no quotas, and for now there’s no comment on currencies. I think they’ve managed to end up with a passable result.”