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ECONOMY

Editorial: Easy path of managed trade will not serve Japan or U.S.

On May 27, Prime Minister Shinzo Abe met with U.S. President Donald Trump, who was visiting Japan as a state guest. Turning to the key topic of Japan-U.S. trade negotiations, the two leaders confirmed their policy to accelerate bilateral consultations with an eye to posting results at an early date.

 

What we are most concerned about is the scenario where the United States demands measures that lead to the control of exports and currency and Japan is forced to accede to these. We would like the two nations to realize that the easy path of managed trade will not serve them and to search for areas where they can reach a constructive agreement.

 

President Trump is insistent about reducing America’s trade deficit with Japan and has indicated his intent to wait until after this summer’s Upper House elections  to bring the bilateral trade negotiations to a conclusion as early as August. The U.S. has expressed the intention of discussing tariffs, including those on agricultural products and autos, without being restricted by the Trans-Pacific Partnership (TPP) trade pact, which the U.S. has exited.

 

Japan has brought into force the “TPP 11” sans the U.S. and an economic partnership agreement (EPA) with the European Union (EU). As a result, U.S. farmers and companies are forced to compete under unfavorable conditions. That is likely the reason why President Trump wants to produce major results quickly. He has made a realistic assessment of the situation by implying that he will wait until after the Upper House elections to reach an agreement on the trade negotiations with Japan in light of its political situation.

 

No matter how much Japan is pressed by the United States, however, there is one demand it cannot accept. Even if it is pressed to liberalize agricultural products to a level exceeding that of the TPP, Japan must refuse to do so. 

 

The TPP can be called a model of a highly liberalized trade and investment agreement. Aiming for an agreement that is in line with this will be the short route to [concluding] the trade negotiations and will also benefit both Japan and the United States.

 

What is more of concern is the introduction of quantitative restrictions on exports to the United States and a currency clause to prevent competitive devaluations by the counterpart country. The United States has postponed its decision on whether to impose high tariffs on auto imports from major countries until mid-November, but the concern remains that it will try to restrict exports and currency by using the imposition of tariffs as a threat.

 

In actual fact, President Trump has clearly stated that an increase in car imports “is a national security threat to the United States” and he is putting pressure on his negotiators to accelerate the trade talks with Japan and the EU. This can only be described as a very outrageous and dangerous act.

 

The United States should remove all high tariffs, including those on steel and aluminum, and promote negotiations in line with the principle of free trade. Japan also needs to work to prevent managed trade.

 

As the world’s third largest and largest economic powers, Japan and the United States have a responsibility to avoid a contracted equilibrium in trade and investment. It goes without saying that they must not spread managed trade around the world by creating a bad precedent of currency clauses and quantitative restrictions on exports.

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