Commentary / Japan

U.S.-Japan trade realities: Unconventional multilateralism

by Paul Goldstein

The initial trade talks between U.S. and Japanese negotiators are incomplete. There is a strong desire to conclude a bilateral U.S.-Japan trade agreement, but there are many specific aspects and technical issues that will need to be ironed out before an agreement can be reached. Moreover, both sides must develop a consensus within their respective governments.

U.S. President Donald Trump appears to favor a bilateral approach, which will impact previously signed multilateral agreements, and his withdrawal from the Trans-Pacific Partnership makes any bilateral trade deal politically difficult for Prime Minister Shinzo Abe. In this context, it is necessary to understand that Trump negotiates from an unconventional multilateral approach.

The Trump administration’s trade approach is essentially a two-step process. First, U.S. negotiators seek unilateral Japanese tariff reductions on American agricultural imports. U.S. farmers, including barley farmers in the upper Midwest, have lost market share to Canada and Australia, both members of the TPP and thus beneficiaries of reduced Japanese tariffs. Trump wants Japan to grant the United States the same tariff reductions that TPP members enjoy. If Japan agrees, this may violate WTO rules and will certainly precipitate objections from other TPP members over preferential treatment to a non-TPP country. This phase of the negotiations also covers an overall commitment from Japan to reduce its trade surplus with the U.S.

Second, the negotiations will cover other critical trade issues, including Japan’s desire to avoid increased tariffs on automobile exports to the U.S. market. Trump threatened to increase tariffs on Japanese cars and trucks but could waive the tariff increases if Japan pledges to boost auto manufacturing inside the U.S. This offer has been discussed prior to the latest talks between Japan’s negotiators, led by economy revitalization minister Toshimitsu Motegi, and their U.S. counterparts, led by U.S. Trade Representative Robert Lighthizer.

All three issues — agricultural goods, tariffs, and automobile and truck imports — are politically sensitive for Abe, who may face domestic criticism as well as objections from the other TPP member countries. Most important for Abe are the agricultural issues, as the prime minster views Japan’s relationship with the U.S. as far more strategically important than ties with Canada or Australia. Before the Trump-Abe summit in late April, it was unclear whether the two leaders would enter into a detailed discussion on these issues or whether they would leave this aspect of the trade talks to their negotiators.

Other critical issues discussed at the summit included North Korea’s denuclearization and ongoing diplomacy with North Korean leader Kim Jong Un; China’s role in the Indo-Pacific region; and U.S.-China trade negotiations.

At this point, the U.S.-China trade talks are very advanced and the objective is to conclude the negotiations within a month or two. Trump and Abe also addressed Japan-Russia relations, including discussions about resolving the dispute over Russia’s annexation of the Northern Territories in 1945. However, despite Russo-Japanese economic diplomacy, talks on concluding a formal bilateral peace treaty ending World War II and the territorial dispute are all in their preliminary stages.

Trade was also on the agenda. Prior to the Motegi-Lighthizer discussions, the prospects for a U.S.-Japan FTA in the short term faced significant obstacles. From the Trump administration’s point of view, Abe’s government is stalling unnecessarily and is reluctant to conclude an FTA. Trump and U.S. Ambassador to Japan William Hagerty have delivered a consistent and unmistakably clear message that Japan’s trade negotiators must come to an agreement with the U.S. team over the course of the next period.

From a Japanese business perspective, the Trump administration’s approach is truly unfair to Japanese companies operating in the U.S. and China. Trump’s harsh tariff policy has hurt Japanese businesses, and the U.S. withdrawal from the TPP was also harmful to Japanese interests. Now there’s a potential complication: Trump may tell Lighthizer to bargain for an even lower tariff than under the TPP agreement. If Japan is pressured to accept the lower tariffs, it could ultimately break the TPP agreement. Is this Trump’s objective? At this point, it is too early to tell what the effects of the president’s unconventional multilateral approach will be.

Paul Goldstein is president and CEO of Pacific Tech Bridge, an Arlington, Virginia-based consultancy specializing in global research, cybersecurity and U.S.-Japan corporate cooperation.

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