The Japanese and U.S. governments have agreed to commence bilateral negotiations with an eye to concluding a Trade Agreement on Goods (TAG). For the time being, the imposition of additional tariffs, something domestic automakers had feared, has been averted. The United States has indicated it will respect Japan’s insistence that “the pledges it made in the Trans-Pacific Partnership (TPP) trade pact constitute the maximum level” with regard to access to Japan’s agricultural market. The content of the agreement that will be reached will depend on the negotiations. To the extent that Japan’s counterpart is the “unpredictable” Trump administration, sources close to the issues remain cautious.
On Sept. 27, Japan Automobile Manufacturers Association Chairman Akio Toyoda (president of Toyota Motor Corporation) released a comment welcoming the agreement made at the Japan-U.S. summit meeting: “We welcome the fact that additional tariffs will not be imposed during the (TAG) negotiations.”
Japan exported some 1.74 million vehicles to the United States in 2017. This accounted for 40% of all Japanese exports to the United States. U.S. President Donald Trump has pledged to cut the trade deficit and has hinted he will impose import restrictions by raising the tariffs on autos from the current 2.5% to up to 25%. Trade sources say, “He did this because he thinks he needs to rattle the auto industry, Japan’s mainstay sector, in order to have us really take action to rectify the trade imbalance.”
The Japanese auto industry shuddered at the thought of the imposition of the additional tariffs as it would cause losses of 2 trillion yen a year, as it has pointed out.
To that extent, Toyota and others are relieved that additional tariffs have been avoided for the time being. In the Japan-U.S. joint statement, however, U.S. claims regarding the TAG negotiations are clearly stated: “For the United States, market access outcomes in the motor vehicle sector will be designed to increase production and jobs in the United States in the motor vehicle industries.” This means there is a chance that the Trump administration will press Japan to expand U.S.-based production of vehicles and to voluntarily restrict its exports in the negotiations. A source close to a Japanese manufacturer said, “The Japan-U.S. agreement is nothing more than a shelving of the issues.” A high-ranking official at another manufacturer comments, “There is absolutely no guarantee (that additional tariffs will be averted in the end).”
The joint statement includes a clause to the effect that the “levels agreed in the TPP constitute the maximum level” for Japan’s reduction of tariffs on its agricultural products. Agricultural sector sources, however, wonder, “Is that really what will happen?” They warn that the Trump administration will seek outcomes that exceed those in the TPP in terms of agricultural market opening.
On Sept. 27, JA Zenchu Chairman Toru Nakaya released an informal opinion, saying, “We would like to see [the government] make every effort to ensure transparency as much as possible during the negotiations so as not to fuel concern among farmers.” He thus requested the Abe administration to explain the status of the negotiations going forward.
A 60-year-old dairy farmer in Sarabetsu Village, Hokkaido, expresses his concerns about the future: “The Japanese government said that it would not conclude an FTA with the U.S., but now it has in effect initiated FTA negotiations. It has entered the ring of bilateral negotiations with President Trump, who is strong in this area and advocates the “America first” principle. Will our government really be able to keep things within the level of the TPP? If the trend of turning away from farming accelerates, Japan’s domestic agriculture will become unsustainable.”