Both leaders scored points, but talks on a comprehensive free trade agreement are not over, and the US ‘wins’ look four years late.
An oddly tentative, non-comprehensive and clearly incomplete bilateral trade agreement was signed in New York on Wednesday by Japanese Prime Minister Shinzo Abe and US President Donald Trump.
There had been widespread expectation that the two leaders would sign a trade deal on the sidelines of the UN General Assembly in New York, and while the deal done is far from complete, it appeared to offer wins for both leaders.
Trump sought to gain US farmers – a key voting bloc who are heavily impacted by the Beijing-Washington trade war – access to the Japanese market. Wednesday’s deal delivers that.
Abe also appeared to have achieved his key objective – albeit without written clarity.
It had been widely assessed that his key aim was to ensure the protection of Japan’s auto sector against possible US tariffs. While there was no mention of that in the document released by the US Trade Representative’s office, Japanese media, citing a later press conference and comments from the chief US negotiator, made clear that Abe had, indeed, wrested that concession from Trump.
According to the USTR, Wednesday’s agreement will “stably, and mutually beneficially expand the shape of Japan-US bilateral trade, which accounts for nearly 30% of world GDP.”
In addition to trade, the two countries are also their biggest reciprocal investors.
The agreement covers $7 billion in US agricultural goods, Japanese industrial goods including machine tools, turbines and musical instruments of undeclared value and some $40 billion in digital trade.
In the latter sphere, the deal is expected to prohibit taxes on cross-border digital downloads and prohibit rules on data localization, furthering the US model of internet development.
Yet, though the Abe-Trump huddle was held amid an ambiance of bonhomie, the signing, held at the InterContinental New York Barclay, looked like a combination between a Trumpian photo opp and a rushed trade deal.
Moreover, Wednesday’s deal – reached in only one year of intense talks – appeared to piggyback on the provisions of a pre-existing but not defunct deal, the Trans-Pacific Partnership.
What was not done
The preliminary nature of the agreement was confirmed by Trump, who said that he and Abe were signing a document “… outlining the significant steps we’re taking toward a fair and reciprocal trade agreement.”
Trump added: “Our teams will continue negotiations on remaining areas of interest to achieve a final comprehensive agreement … we’re negotiating very, very big transactions with Japan.”
He was vague on when those talks might bear fruit. “In the fairly near future, we’re going to be having a lot more very comprehensive deals signed with Japan,” he said.
Even given the limited scope of Wednesday’s agreement, its ratification and implementation schedule is up in the air.
“We will sign these agreements as quickly as possible, and we both aim to implement it at the earliest time after completing the various domestic procedures,” USTR noted.
Trade deals customarily require lengthy ratification processes in national assemblies. Like Trump, the USTR also made clear that much work remains to be done.
“In order to accelerate reciprocal, fair, and mutual trade, [Japan and the US] intend to begin negotiations regarding topics such as tariffs and other limitations in trade [like] barriers to trade in services and investment,” the body wrote.
What was done
As had widely been anticipated, one of the two big American winners appeared to be farmers in the heartland – a class of voter taking heavy fire from Beijing in the ongoing China-US trade war.
Their win is also a boost for Trump, who needs to stack up domestic points as he counters the opposition Democratic Party, who are leaning increasingly toward impeachment, and as he squares up for next year’s presidential election.
According to Trump, the deal will affect $7 billion worth of American agricultural products. “Japanese tariffs will now be significantly lower, or eliminated entirely, for US beef, pork, wheat, cheese, corn, wine,” he said as Abe nodded. “This is a huge victory for America’s farmers, ranchers and growers.”
Trump took aim at a favorite target – US trade deficits with partners that had endured under previous Washington administrations.
“The deal we’re announcing today will reduce our chronic trade deficit built up and taken effect over many, many years of dealing with other governments and other administrations,” he said.
Abe was typically diplomatic. He entered free-trade negotiations at US insistence in September 2018 after Trump had, in 2016, nixed a prior multilateral deal – the Trans-Pacific Partnership – that would have woven their economies together. In his statement, he mentioned only that the negotiations had been “strenuous.”
Wednesday’s deal would “bring benefit to everyone in Japan as well in the United States, namely consumers, producers, as well as workers,” Abe stated. “So the outcome of this negotiation is actually a win-win solution for Japan and the United States.”
What remains unclear
Japanese media stated that their prime minister had obtained a commitment from Trump on his key issue.
“At issue was whether Japan would win an exemption from Section 232 of the US Trade Expansion Act put into writing,” the Mainichi Shinbun reported. “Abe later told a press conference that he has confirmed with Trump that additional tariffs will not be imposed on Japanese cars and auto parts.”
The Mainichi also referred to comments from the US chief negotiator Robert Lighthizer to the White House Press Pool. “At this point, it is certainly not our intention, the president’s intention, to do anything on autos, on 232s, on Japan,” Lightizer had said.
Still, absent written confirmation, some experts were skeptical about the stated US commitment.
“Would a 232 tariff on autos be a violation of the spirit of a market access agreement that does not cover the auto sector?” asked Mariya Solis, a trade expert at the Brookings Institute, in a note sent to the influential newsletter The Nelson Report. “My question derives from the unease I feel to see a US-Japan trade deal that leaves out the core of trade/investment flows [automobiles].”
Solis also raised the issue of what dispute-resolution mechanisms would be employed in the implementation of Wednesday’s agreement, should such instruments be required.
TPP for USA?
All indications are that Trump might have been able to gain the concessions he won on Wednesday four years earlier had he taken a different political course at that time, for many of the conditions appear to piggy-back on an earlier agreement.
The access the United States won to Japan’s agricultural market appears to be the same as those already granted to members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPATPP, an 11-nation, multilateral free-trade pact that entered force last year.
This suggests that the benefits would have been won earlier if Trump had not pulled out of the proto-CPATPP, the Trans-Pacific Partnership, or TPP, in 2016. The US withdrawal left Tokyo the lead economy, and Abe the key motive force, in the truncated pact that subsequently became CPATPP.
Along with farmers, the other big US sector likely to benefit is technology. Trump trumpeted the $40 billion worth of digital trade that would be favorably affected by his deal with Abe.
Yet – like agricultural goods – digital trade had previously been dealt with in the highly detailed, eight-year-long discussions that took place around the TPP.