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Economy

The US-Japan Trade Agreement Only Benefits the US

Sep 09 , 2019
  • Wu Zhenglong

    Senior Research Fellow, China Foundation for Int'l Studies

During the G7 Summit, U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe announced that the two countries had come together in principle on a new trade agreement to be signed in September. It will take effect this year.

No details were announced, but various information suggests that the new agreement will focus on trade in goods, agricultural and industrial tariffs and digital trade. In these three areas, more information is available about agriculture than the other two.

Under the agreement, Japan will open its market to more than $7 billion worth of agricultural products from the United States, benefiting beef, pork, wheat, dairy products, wine and ethanol. Japan will reduce tariffs on U.S. agricultural products to the level of members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. For example, Japan will lower tariffs on U.S. beef from 38.5 percent to 9 percent in stages. Moreover, it will agree to import $14 billion worth of surplus corn from the United States.

For the U.S. side, the tariffs on Japanese vehicle imports will remain unchanged. The agreement will not end tariffs on light trucks, other vehicles or auto parts from Japan, nor will it end the threat of the United States to increase tariffs on vehicle imports on national security grounds. Moreover, it will not remove tariffs on Japanese steel and aluminum products.

Obviously, Japan made concessions under U.S. pressure that only benefit the U.S. It is a vivid demonstration of a practice outlined in Trump: The Art of Deal. No wonder the Japanese media have said that Abe has some explaining to do to the Japanese people. What benefits does Japan get from this agreement? In addition, Kyodo News also said it was an open question whether the final text of the new agreement will include an automobile clause or not. If Japan cannot make progress in this respect, it is hard to call it an effective agreement.

In fact, the United States and Japan have never had a free trade agreement. The Trans-Pacific Partnership, initially led by the Obama administration, was likely to become the first free trade agreement between the two countries. However, after Trump announced the withdrawal from the TPP (renamed CPTPP after Japan took the lead), the two countries have not formed another one. However, after the CPTPP took effect, the United States did not enjoy the same preferential treatment as the member states of Australia and Canada in terms of access to the Japanese market, and it felt it was at a disadvantage.

To make up for the loss and to balance trade between the two countries, after several rounds of consultations, the United States and Japan issued a joint statement during Abe’s visit to Washington in September last year announcing that formal negotiations would begin on bilateral trade agreements. As an early harvest, the first trade agreement will cover the area of trade in goods and services. The two sides said that once that is completed, they will conduct more negotiations in other areas, such as trade and investment-related issues in other fields.

The new agreement excludes trade in services and focuses on trade in goods. There are three reasons for this. First, the United States urgently needs results from economic and trade cooperation to boost Trump’s chances of reelection. Implementing the America First policy, the United States created trade friction with all its major trading partners, and many negotiations reached a stalemate. Trump urgently needs a vanity project, such as the U.S.-Japan trade pact, to appease farmers who have been hurt by trade wars and improve Trump’s chances. Second, the trade agreement for goods was not difficult. Since tariffs on industrial goods on both sides are not high, the main problem was the tariffs on agricultural products. The United States and Japan had already negotiated this during the TPP talks, so all they needed to do was to make slight changes. If they were to include services in the new agreement, it might delay the time needed to reach an agreement. The third reason is that Japan will trade money for safety and support the Japan-U.S. alliance.

From the U.S.-Japan joint statement and the content of the new agreement it is not difficult to see that the U.S. strategy for negotiating with Japan is a sausage-cutting strategy. The United States can rely on its extraordinary strength to apply extreme pressure and divide the comprehensive and integral free trade agreement into several different trade agreements according to the different issues involved, thus achieving the goal of breaking up the whole into parts and gaining an advantage in each. Under the new agreement, this scenario will be repeated.

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