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Expert: Wise to negotiate on tariffs limited to goods

By Professor Motoshige Itoh at Gakushuin University


I give high marks to the latest trade talks at the Japan-U.S. summit as I see the Japanese government did not lose any point.


The administration has been concerned that the U.S. might impose additional tariffs on Japanese automobiles, but Tokyo was able to evade it for the time being. I think the latest development gave a sigh of relief to the Japanese business community, especially the auto industry.


The government was also able to maintain its stance of keeping the level of opening up the market of agricultural products within the level agreed on in the Trans-Pacific Partnership (TPP) accord. From an economics viewpoint, there would be no problems even if the Japanese government lowers tariffs on agricultural products. It would rather lead to benefiting all the people. However, as it will become a political issue in Japan, the government cannot easily enter into negotiations with the U.S. on the matter.


It was wise for the government to limit its negotiations with the U.S. to goods, excluding services and investment. As President Donald Trump seems to be always preoccupied with the issue of trade deficit, it is difficult for Japan to squarely point out that the president is wrong. In order to overcome the difficulty, it is better to limit negotiation items at first.


The U.S. is currently in a serious trade war with China and its bilateral negotiations with Canada over the North American Free Trade Agreement are facing difficulties. Under the circumstances, it might be the case that Washington cannot confront with Japan on an extensive scale.


In order to prevent the worst case scenario (in which the confrontation between Japan and the U.S. intensifies) from happening in the future negotiations with the U.S., Japan can still cooperate with the Trump administration’s trade policy. For instance, Japanese automakers can choose to increase their production in the U.S. The trade friction between Japan and the U.S. during the 1980s provided an opportunity for Japanese automakers to increase their production globally. They accepted tough conditions but helped the industry grow.


Negotiating with the Trump administration involves many unpredictable factors. Taking into account past negotiations between the U.S. and Mexico or South Korea, Washington may seek to employ a “quantitative restriction” in which the U.S. will raise tariffs on Japanese automobiles if the number of imported cars will exceed a certain level. Japan should prepare for such a restriction even though the U.S. does not mention it at present.


Negotiations with the U.S. are not everything for Japan. Tokyo has taken the lead in concluding the TPP agreement with 11 countries including Australia and other countries. There are growing voices positive about Japan’s leadership in trade policy. Japan needs to use this chance to increase partners who promote free trade.


The issue of reforming the World Trade Organization, which President Trump makes light of, is also an urgent task. On the sidelines of the latest UN General Assembly, Japan, the U.S. and the European Union recognized the importance of protecting intellectual property and agreed to co-propose a bill to reform the WTO. I can say this is a good move.


Free trade is similar to riding a bicycle. Unless somebody keeps pedaling, it would fall. Japan should take the lead in reaffirming the importance of free trade.

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