Japan and the U.S. have agreed to begin new trade talks. Japan managed to avoid additional auto tariffs on the auto sector for now, but Washington keeps pressuring Tokyo. Japan needs a tireless trade strategy that can bring the U.S. back to multilateral negotiations while seeking a point of compromise.
Japan has been adopting a strategy of avoiding a bilateral free trade agreement with the U.S. and calling on the U.S. to return to the multilateral Trans-Pacific Partnership agreement.
It can be said that the launch of new bilateral trade negotiations on a Trade Agreement on Goods (TAG) is a result of Japan being forced to change its policy under the pressure of President Donald Trump, who strongly insists on reducing his country’s trade deficit with Japan.
In exchange, the U.S. agreed to exclude Japanese cars from its list of items subject to punitive tariffs while the two countries negotiate a TAG. The agreement tentatively spared Japan’s key auto industry a blow. The two countries say in a joint statement that tariffs on agricultural products, including beef and pork, can only be lowered to the level agreed on in the TPP deal. But the joint statement did not touch on a “currency clause,” which could restrict the monetary policy of the Bank of Japan. In that sense, it can be said that the U.S. succeeded in buying time for a while.
But the Japanese and American leaders already have different views on whether the new trade negotiations targeting tariffs will lead to wide-ranging bilateral FTA negotiations.
Prime Minister Shinzo Abe said, “It [TAG] is totally different from an FTA.” But President Trump explicitly told reporters, “Today we agreed to start new FTA talks.” The difference indicates that the launch of new trade talks is based on an ambiguous agreement made by the two leaders, who will face mid-term elections in November and an Upper House election next year, out of consideration for each other. The two countries are likely to kick off new negotiations early next year but will inevitably face difficulties.
Japan is a trading nation, and its economy is therefore based upon the free trade system.
President Trump, in his UN speech, said he will “reject globalism” and clarified his “America First” policy. But it goes without saying that Japan does not intend to deny globalism but aims to uphold and develop a multilateral collaborative framework while fixing shortcomings of free trade, which tends to see the strong preying upon the weak.
The World Trade Organization is to play a pivotal role for that but has been failing to do so. Japan, the U.S., and Europe agreed to make a joint proposal soon for a reform of the WTO. Also, China, whose economic system led by the government is under fire, is poised to discuss WTO reform with the EU.
Japan needs to pursue a strategic economic diplomacy of taking leadership in restructuring the WTO and persuading President Trump to remain in the global organization while tenaciously engaging in new trade negotiations with the U.S.