In the first round of bilateral trade talks between Japan and the United States, under a framework agreed on by Prime Minister Shinzo Abe and President Donald Trump last September, the two sides agreed to expedite negotiations on reducing tariffs on agricultural and industrial products — and to negotiate over digital trade, including e-commerce and music distribution services. While Tokyo reportedly hoped to limit the scope of the talks to trade in goods, the participants in the meeting in Washington this week did not appear to have narrowed down the subjects of future talks. U.S. Trade Representative Robert Lighthizer cited the “very large” U.S. trade deficit with Japan, an indication that Washington will be placing greater pressure on Tokyo to take concrete steps in the coming negotiations.
With its “America First” protectionist agenda, the Trump administration, which pulled out of the Trans-Pacific Partnership free trade pact among its first decisions in office, has sought bilateral negotiations with its trading partners under the threat of punitive tariffs in an effort to conclude trade agreements under favorable terms for U.S. interests. Although Japan earlier was hesitant about the idea of a free trade accord with the U.S. because of its priority on multilateral free trade regimes, the government agreed to the bilateral talks, saying they would negotiate an agreement for trade in goods, not a comprehensive FTA — which Washington later said it would be pursuing with Tokyo. The two sides plan to meet again ahead of a summit between Abe and Trump later this month.
The Trump administration, bent on winning tangible results to show his supporters as the president campaigns for re-election in 2020, is expected to press Japan to take concrete steps to reduce its trade surplus with the U.S. — which at $67.6 billion was the fourth-largest for U.S. trade partners last year after those of China, Mexico and Germany. Although Lighthizer and economy revitalization minister Toshimitsu Motegi are not believed to have gone into details on the matter, Treasury Secretary Steven Mnuchin, speaking prior to the talks, pushed for the inclusion of a currency provision that prohibits a nation from intentionally guiding its currency lower.
Automotive trade, which accounts for 75 percent of the U.S. trade deficit with Japan, looms big as the key topic of discussion. Motegi repeated Japan’s view — as stated when Abe and Trump agreed to the talks — that the U.S. will not introduce heavy tariffs on Japanese auto and auto parts imports into the U.S., on “national security” grounds under Section 232 of the U.S. Trade Expansion Act, as long as the bilateral talks are taking place. But the U.S. is also said to be weighing numerical curbs on vehicle imports from Japan. From the viewpoint of multinational free trade rules, it is unacceptable to use the threat of higher import duties to call for restrictions on vehicle exports.
Japan has reportedly made it clear that it will not accept a numerical curb on vehicle exports — a position it must maintain in the talks. Striking any compromise with the U.S. that runs counter to international free trade rules would undermine the credibility of Japan as an advocate of free trade, which took the lead in reviving the TPP following the U.S. withdrawal and vowed to promote multilateral free trade schemes even as the U.S. pursues its protectionist interests and engages in a bitter trade war with China. Any agreement that Japan reaches in its negotiations the U.S. must be consistent with free trade rules under the multinational framework.
The Trump administration is believed to be in a rush for quick results because the U.S. is now at a disadvantage with rival exporters of farm products in access to the Japanese market. Since the TPP and Japan’s economic partnership agreement with the European Union entered into force, lower Japanese tariffs on farm imports have increased imports from the countries that joined the free trade pacts, reducing the share of now less competitive U.S. products in the Japanese market. During the talks this week, the U.S. pushed Japan to take steps to expand imports of its agricultural products. Japan should stick to its position of limiting the liberalization of its farm trade to the level that it agreed to in the TPP negotiations — otherwise it risks damaging its credibility among the 10 other countries with which it concluded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after the U.S. exit.