The first round of the bilateral economic dialogue between Japan and the United States, which Prime Minister Shinzo Abe and President Donald Trump agreed to initiate in their February summit, ended last week without going into substantial discussions, only setting the stage for talks to continue between Deputy Prime Minister Taro Aso and Vice President Mike Pence in three areas, including trade and investment rules. The U.S. side indicated, however, that Washington hopes the dialogue will pave the way for a bilateral free trade agreement and steps to trim its trade deficit with Japan.
Despite the tough rhetoric of the Trump administration in its “America First” policy, trade issues between the two countries are nowhere near as serious as they were in the 1980s, when trade friction was the main concern in the bilateral relationship. Then, Japan was the source of roughly half of the overall U.S. trade deficit. Today, it has the second-largest trade surplus with the U.S. but accounts for only 9.4 percent of the total, compared with China’s 47 percent. In direct high-level talks with Japan, the U.S. side reportedly hasn’t hurled unilateral accusations on trade matters.
Still, there are some in the U.S. business community and government that persist in blaming Japan for the U.S. trade woes. In its first report released last month under the Trump administration, the Office of the U.S. Trade Representative singled out Japan’s agriculture and automobile markets as sectors that pose barriers to American imports. Although currency issues are not believed to have been taken up in last week’s economic dialogue, the Trump administration charges that Tokyo is driving the yen down against the dollar to boost Japanese exports, and Japan, along with China and four other countries, are kept on a Treasury Department list of nations to be monitored over potentially “unfair” currency practices. An executive order signed by Trump late last month calls on the Commerce Department and the USTR to identify within 90 days sources of trade deficits with each of the countries that have large trade surpluses with America, with Japan most likely among the targets.
While Aso said Japan-U.S. trade friction is “a thing of the distant past” and hailed the current bilateral economic relationship as one of cooperation, Pence said the Trump administration “seeks stronger and more balanced bilateral trade relationships with every country, including Japan.” The possibility remains that the U.S. side will take up its trade grievances with Japan in subsequent rounds of the economic dialogue. Tokyo should be ready to rebut U.S. charge of “unfair” Japanese practices where it needs to.
Take, for example, the claim that Japan keeps its car market closed to American vehicles. While the U.S. keeps a 2.5 percent tariff on car imports from Japan, Tokyo has slashed its tariffs on car imports to zero. The U.S. side often cites Japan’s vehicle certification system and testing procedures as nontariff barriers that exclude American imports, but that does not explain why European automakers are doing much better in expanding their sales here. The poor sales of American vehicles are widely blamed on insufficient marketing efforts by U.S. automakers and their failure to produce vehicles that meet the needs of Japanese consumers.
The structure of Japanese car exports to the U.S. has also significantly changed since the 1980s, when auto exports were responsible for a major portion of Japan’s trade surplus with the U.S. After the bitter auto trade dispute resulted in voluntary export curbs, Japanese automakers expanded their production in the U.S. for the local market, investments that have contributed to American jobs, which the Trump administration prioritizes in its economic policy. Toyota, which built 1.38 million vehicles in the U.S. last year, announced plans to invest ¥1 trillion more in its U.S. operations over five years after Trump tweeted his criticism of its planned Mexico plant. These facts should be highlighted if automobile trade is to be taken up in future talks.
If agriculture is going to be on the agenda, Japan should limit liberalization of its farm trade within the scope of what it pledged in the negotiations for the Trans-Pacific Partnership deal, which Trump has pulled out of.
The bilateral economic dialogue should focus on constructive discussions on mutually agreeable rules designed to expand trade and investments as well as economic cooperation between the two countries.
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