The agreement appears more beneficial to the United Sates than to Japan. It is appealing to US voters since Japan will cut import tariffs on beef, port wheat, dairy products, wine and other products to the level secured under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that took effect from December 2018. As a result, US exporters hope to recover their lost market shares relatively quickly from Australia and Canada, as well as Europe after it gained comparative advantage due to February 2019’s Japan–EU Economic Partnership Agreement.
Separate to this agreement, Japan earlier suggested a possible advance purchase of corn for feed from the United States — not necessarily committing to additional purchase — although this contradicted Trump’s tweet stressing ‘Big Trade Deal … Really big Corn purchase!’
In sharp contrast, no deal was reached on cutting the car import tariffs that Japan was hoping for — cars are Japan’s largest export item to the United States — even though tariffs were abolished on some other industrial products and food products such as green teas and soy sauce. On this, the US government deviated from a previous promise on the tariff’s eventual abolition expressed at negotiations under then-president Barack Obama in 2017. The official statement also did not confirm that Japan’s car exports will be exempted from the 25 per cent additional tariffs implementable on national security grounds pursuant to Section 232 of the Trade Expansion Act of 1962.
Still, Japan’s government said that such tariffs will not be imposed as long as the agreement is faithfully implemented. And by framing the current trade agreement only as a ‘first stage’, the US government plans to continue more comprehensive negotiations on tariffs on remaining items — including cars — and non-tariff agreements with Japan.
Both countries are rushing to implement the trade agreement quickly, hoping to sign it soon and implementing it sometime this year or early next year. The US government will seek to implement the trade agreement without congressional approval pursuant to provisions of the Trade Priorities and Accountability Act of 2015 that might permit the President to unilaterally implement trade agreements that cover only tariff barriers and if tariff cuts are less than 5 per cent. Japan’s coalition government holds a majority in the National Diet and is likely to easily pass the legislation in the extraordinary session starting in early October.
What motivates their hasty actions? For the United States, winning the 2020 presidential election is the absolute priority. Trump is already pleasing various agricultural producers’ and exporters’ groups with the agreement. What about Japan? Japan’s public appears to be muted on the implications of the trade agreement, except that concerns have been expressed from the agricultural sector about fear of losing market shares against more competitive foreign producers.
Japan’s priorities during the first stage of trade negotiations were set on preventing two events — a substantial cut in agricultural import tariffs beyond the CPTPP level and the US government implementing the 25 per cent prohibitive tariffs on Japanese cars. By making greater concessions, the first goal was met successfully while the second was achieved for the time being. Indeed, there is a sense of relief in Japan given that intensified trade disputes between the United States and China are already badly hurting Japan’s exports. And despite a series of trade liberalisation measures, the contribution of net exports to real GDP growth is expected to be negative this year.
What will happen in the next stage of negotiations? Japan needs to prepare for tougher, longer negotiations with a ‘fickle’ Trump whose primary concern is pleasing his domestic audience in the lead up to elections. The United States may introduce concrete measures to cut trade deficits on cars given that about 80 per cent of US merchandise exports with Japan arise from cars and auto parts — even though export volume constraints introduced in the new US–Mexico–Canada Agreement is unlikely according to Japan’s government.
Similarly, the so-called ‘poison pill’ that requires Japan to notify the United States if it is negotiating a free trade agreement with China might be added and work against Japan’s intention to realise a Regional Comprehensive Economic Partnership (RCEP) including China. Another fear is an inclusion of the foreign exchange clause against currency manipulation, which Japan’s government is desperately trying to avoid to keep a free hand on foreign exchange intervention in case of a sharp, steady appreciation of the yen. In any case, Japan continues to be swayed by Trump’s preoccupation with winning the 2020 presidential election.
Sayuri Shirai is Professor at Keio University and Visiting Scholar at the Asian Development Bank Institute.