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Commentary: Specter of TPP haunts Japan-U.S. trade relations

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TOKYO — U.S. President Donald Trump visited Japan as the first state guest of the new Imperial era, Reiwa, that began on May 1.

 

Trump appeared to enjoy his four-day stay from May 25, particularly events where his host, Prime Minister Shinzo Abe, showed him hospitality. The two leaders played golf, Trump presented a trophy to the winner of a sumo tournament, and he attended a banquet held by Emperor Naruhito and Empress Masako.

 

But there was a brief moment of tension. At a joint news conference on Monday, a reporter asked how the Japan-U.S. trade negotiations were progressing, specifically whether Japan would maintain its stance that tariffs on farm products should stay within the range set under the Trans-Pacific Partnership, a 12-nation free trade agreement that the U.S. pulled out of just a few days into Trump’s administration.

 

Abe replied that the two countries would create a “win-win” scenario, based on the bilateral joint statement issued in September 2018. After Abe gave this innocuous response, Trump interjected: “I wanted to add, though, that — very importantly — I have nothing to do with TPP… I’m not bound by anything that anybody else signs with respect to the United States.”

 

The September statement says: “For Japan, with regard to agricultural, forestry and fishery products, outcomes related to market access as reflected in Japan’s previous economic partnership agreements constitute the maximum level.” Based on the statement, Abe has maintained that Japan will offer no concessions on agricultural tariffs beyond what it agreed to in the TPP.

 

Trump sees things differently, stressing that he is not bound by the terms of the multilateral deal signed by his predecessor, Barack Obama.

 

The joint statement refers to “Japan’s previous economic partnership agreements” without mentioning the TPP by name. Trump’s comments at the Monday news conference suggest he may be unaware that the joint statement implies no concessions from Japan beyond the TPP.

 

Both Abe and Trump recognize the need to tread softly, given Japan’s upper house election this summer and the U.S. presidential election in November 2020. Nevertheless, the TPP casts a shadow over their partnership.

 

Abe cannot be seen backing down from his vow to hold the line on agricultural market access — at least not before the House of Councillors election. Trump, for his part, has already informally begun his campaign for reelection in 2020. He will not want to sign a trade deal that offers no better terms than Obama got under the TPP.

 

Trump has made undoing Obama’s legacy his primary mission as president: He has withdrawn the U.S. from the Paris Agreement on climate change, scrapped the Iran nuclear deal and tried — so far unsuccessfully — to dismantle the Obamacare health insurance program. Likewise, he sees the TPP as anathema, not because of its content but because it was concluded by Obama.

 

The September joint statement thus looks like a fragile bit of diplomatic wording upon which to build a trade negotiation. If Japan sticks to its position that the terms of the TPP are its best offer on farm products, the big question will be whether Tokyo can offer sweeteners in other areas to keep the talks on track.

 

Thomas Donahue, president of the U.S. Chamber of Commerce, visited Japan two weeks before the Abe-Trump summit. After he met the prime minister, he said Japan and the U.S. should take the time to conclude a trade agreement that can serve as a model for the rest of the world. Rather than pushing for a narrow deal on farm products and cars, it should be broad and include digital commerce and services.

 

The Japanese government likes this idea, believing the two sides should take the lead in developing a new multilateral trade regime. Instead of rehashing the TPP, they should reach a bilateral agreement that goes the TPP one better by including such matters as rules for the digital sector, and call on other countries to conclude similar deals.

 

That would enable Trump to crow on Twitter: “We concluded a great deal — beyond comparison with TPP!” Getting him to go along will require a lot of sweet talk: Trump likes to focus on tangible products like cars when it comes to trade.

 

If the world’s No. 1 and No. 3 economies opt instead for managed trade, such as quotas on auto imports, in their deal, the postwar global trade order, built on broad, steady liberalization, could come unglued. 

 

While the U.S.-China trade war has grabbed the headlines, the question of whether Japan and the U.S. can work out a more open trading relationship has huge implications for the global economy.

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