Commentary / Japan

Negotiating 'America First' trade with Trump

by Yoichiro Sato

U.S. President Donald Trump is scheduled to come to Tokyo on Saturday to meet with Prime Minister Shinzo Abe. Trump indicated earlier that a deal may be achieved in the bilateral trade talks with Japan even before his arrival, but so far there has been no such sign. While tight information control to focus public attention on a grand announcement cannot be completely ruled out, finding an agreeable compromise point would seems to require additional talks at a less-publicized bureaucratic level.

Trump’s trade policy started with his decision to pull the United States out of the Trans-Pacific Partnership deal in 2017. The U.S. joined the TPP negotiations in 2010, followed by its two partners in the North American Free Trade Agreement (NAFTA), Canada and Mexico, in 2012 and Japan in 2013.

Japan’s decision to join the TPP was mostly based on economic cost-benefit analysis. While a reduction of Japan’s trade barriers, including tariffs, exposes agriculture and previously closed service sectors to competition with foreign suppliers, competitive sectors in the Japanese manufacturing industry would benefit from a reduction of tariffs by Japan’s trade partners.

For Japan to maximize the gains over losses, the inclusion of the U.S. and its NAFTA partners in a multilateral trade agreement was highly desirable given that the largest gains for Japan were expected from tariff cuts on the export of manufactured product to the North American market. Negotiating in a multilateral setting also allowed Japan to borrow the strength of collective bargaining from other members vis-a-vis the U.S.

Japan’s preference for multilateral negotiations in trade has been a consistent strategic feature. Prior to the launch of the World Trade Organization in 1995, Japan was already known as a “friend” of GATT (the General Agreement on Tariffs and Trade).” The original focus of GATT negotiations on trade in manufactured goods, not including agricultural products and services, allowed Japan to engage in more focused negotiations with less need for domestic adjustments of conflicting interests. The forum also shielded Japan to some extent from unilateral and sector-specific demands from its trade partners, most prominently the U.S.

But while reductions of tariffs were negotiated in multilateral GATT negotiations, Japan was not spared bilateral trade disputes with the U.S. and bilateral negotiations to settle those disputes.

The U.S. strategy to link trade disputes with other issues further aided its bargaining power against Japan. Negotiations over the textile dispute, from 1955 to 1972, were linked with the negotiations for Okinawa’s reversion to Japan.

The prolonged automobile trade disputes led President Bill Clinton to “talk down” the dollar in 1995 to pressure Japan into making concessions on the procurement of U.S.-made parts by Japanese automakers. Through both automobile and semiconductor trade disputes of the 1980s and ’90s, Japan’s trade negotiators have developed a strong resentment against U.S. pressure to force numerical targets into bilateral agreements.

In the aftermath of the U.S. withdrawal from the TPP, Japan quickly concluded an economic partnership agreement with the European Union and approached China to restart the stalled Regional Comprehensive Economic Partnership negotiations. The former improved Japan’s relative negotiating position regarding the U.S. The latter aims at improving Japan’s bargaining power vis-a-vis both the U.S. and China as Trump declared a trade war against China but concurrently imposed some punitive tariffs against Japanese steel and aluminum products.

When Japan decided to turn the hitherto agreed outcome of the TPP negotiations after the U.S. withdrawal into the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the act highlighted Tokyo’s resolve to uphold free trade as a global economic norm in defense against the rising tide of protectionism in the U.S. However, Japanese leaders’ initial reluctance to enter bilateral talks with the U.S. quickly faded as Trump demanded a bilateral approach in discussing trade with Japan.

For Trump, the objective of his negotiation with Japan are mainly threefold:

Having the concessions in the agriculture sector that Japan made in the CPTPP (and preferably more) extended to the U.S. This would compensate for the benefits the U.S. lost by withdrawing from the TPP.

Forcing Japan into opening service sectors, especially insurance and domestic shipping, which was untouched by the CPTPP.

Minimizing U.S. concessions (preferably none) on existing auto tariffs. When Trump met Abe in Washington last month, he told him that the U.S. had no tariffs on automobiles. While it is not clear whether this statement was due to his sheer ignorance, Abe pointed out the facts about U.S. tariffs on auto imports as if the two leaders were exchanging jabs.

The power negotiations linked to other issues that the U.S. has historically employed vis-a-vis Japan will likely be repeated by Trump, who takes pride in his negotiation skills.

Japan has already announced increased procurement of defense equipment, including additional F-35 fighter jets, to demonstrate its contributions to improving the U.S. trade balance. But this will not serve as a card in the upcoming negotiations as it has already been played.

Some Japanese automakers have already announced plans to increase their procurement of U.S.-made parts for use in their American plants. Here again, Japan used some of its limited negotiation cards prematurely.

The U.S. president’s transactional diplomacy is not based on long-term trust, but rather on on-the-spot exchanges of concessions. This defies the lessons of typical negotiation textbooks, which emphasize long-term relationship building. The current calm may quickly turn into a small storm.

Yoichiro Sato is a professor at Ritsumeikan Asia Pacific University.