The US–Japan trade deal a win for Trump or Abe?

US President Donald Trump and Japanese Prime Minister Shinzo Abe inked the US–Japan Trade Agreement to much fanfare on September 25, 2019.

Abe declared the deal a ‘win-win’ for both sides while Trump has emphasised that it ‘a huge victory for America’s farmers, ranchers and growers’.

Yet the deal is positioned as an initial agreement in the midst of ongoing negotiations. With an estimated liberalisation rate of 60–70 percent on a trade value basis, it falls far short of the comprehensive standards expected of bilateral accords under World Trade Organization rules. So why the rush to get a limited deal?

Trump’s need for a political trophy is motivated at least in part by the slew of crises facing his administration and the need to refocus public attention on a positive achievement.

Trump is facing impeachment inquiries by US Congress after the whistleblower complaint alleging abuse of public office. Trump is said to have put pressure on Ukrainian President Volodymyr Zelensky to investigate Democratic Party presidential frontrunner Joe Biden — under the implied threat of withholding US$391 million earmarked for military aid. These revelations have seen Trump’s support decreasing with even a public opinion poll by the partisan Fox News showing a majority of respondents in favour of impeaching Trump.

SEE ALSO: US, Japan ink trade agreements on farm, digital exports

The US–China trade war is wreaking havoc on US farmers. Given the peculiarities of US gerrymandering and the Electoral College system, farmers in battleground states such as Iowa, Michigan, Pennsylvania and Wisconsin were a key group that helped Trump over the line in his November 2016 electoral victory.

But with his proclaimed goal of bringing back manufacturing jobs to the United States, such as in the steel and auto industries, Trump went trigger happy slapping tariffs on countries that are key US agricultural export markets, such as China, Europe, Canada and Mexico.

These countries felt compelled to retaliate with tariffs of their own, and US farmers bore the brunt of the costs from the decreased competitiveness of US agricultural goods. The US–Japan Trade Agreement is intended to provide at least the appearance of some relief and Trump will hope to stave off any electoral opening the Democrats are sniffing for in the Farm Belt.

The Office of the US Trade Representative has emphasised ‘Trump’s leadership’ in securing this early agreement eliminating or reducing tariffs on ‘over 90 per cent of US food and agricultural products imported into Japan’.

This includes reducing Japanese tariffs on US beef and pork exports to Japan worth US$2.9 billion, in line with the rates for competitor countries who are members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). It further eliminates tariffs on US$4.3 billion of US foods such as nuts, berries, wine and cheese.

For its part, the United States will eliminate or reduce tariffs ‘on 42 tariff lines for agricultural imports from Japan’ valued at US$40 million in 2018, such as ‘flowers, persimmons, green tea, chewing gum, and soy sauce’ as well as some Japanese industrial goods including ‘machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments’.

There is also a separate agreement on digital trade aimed at securing the free transfer of data across borders and preventing tariffs on ‘digital products such as videos, music and e-books‘ covering an estimated annual US$38 billion in trade.

The US-Japan Trade Agreement is marred however by it omissions and one-sidedness. While the United States did not get everything it wanted — and tariffs will remain on LPG, aircraft, semiconductor manufacturing equipment, rice, bourbon and whiskey — most of the concessions were made by Japan.

As Aurelia George Mulgan explains in our lead article this week, despite Japan’s concessions on agriculture, nothing was done to resolve the question of tariffs on Japanese automobiles. ‘There was no abolition of existing 2.5 percent tariffs and only a temporary stay of additional car tariffs under Section 232 of the Trade Expansion Act (the imposition of higher auto tariffs on national security grounds)’.

This raises critical questions. Why has the Abe government ‘de facto prioritised cooperation with Trump’s re-election goals while ignoring multilateral trade negotiation principles’? And why, after successfully leading the conclusion of the CPTPP and the Japan-EU Economic Partnership Agreement, has Abe undermined ‘Japan’s much-touted claim to be the flagbearer of free trade’?

SEE ALSO: Abe, Modi and Morrison woo Trump, but to what end?

The simple answer, George Mulgan explains, is that ‘Japan’s entry into the negotiations was motivated by the threat of sanctions’. Given the significance of the automobile industry to the Japanese economy, the threat of tariffs up to 25 percent was a risk that not just Japanese car executives but also Japan’s political leaders seemed willing to go to great lengths to negate. Indeed, in 2018 Japanese car exports to the United States totalled 4.52 trillion yen (US$41 billion) while auto parts exports totalled 929.4 billion yen (US$8.6 billion).

But Japan is not out of the woods yet. As long as Trump is in office, George Mulgan says, ‘Section 232 will hang over Japan’s head like the Sword of Damocles’. There is also the risk that any trade frictions could spill over into US–Japan security relations if Trump decides to circle back to his early campaign rhetoric demanding Japan pay significantly more host-nation support for US troops based in Japan.

For all Abe’s hard work and successful cultivation of close personal ties with Trump, the Abe–Trump bromance has failed to garner a policy win for Japan beyond the aversion of disaster.

Instead, the Abe government has been forced to scramble and stall during negotiations it’s never wanted to enter in the first place. Kowtowing to Trump’s coercive trade diplomacy not only leaves Japan in an anxious position but bodes poorly for the future of the international rules-based trading order.

Meanwhile there is another temporary truce in the US–China trade war, as the US has agreed to hold off on raising tariffs to 30 percent on $250 billion worth of Chinese imports scheduled for later this month.

It’s been called a ‘substantial phase one’ trade deal but like the truce before, does not include any of the difficult issues between the two countries and only time will tell if it will last.

The East Asia Forum Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

This editorial has been republished from East Asia Forum under a Creative Commons License.

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