The sped-up conclusion of a bilateral trade agreement with the United States is a short-term relief for Japan after it made a strategic shift a year ago to its own defense.
But the deal reached between Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump on Wednesday may cloud the outlook for Japan’s goal to promote multilateral trade arrangements in the Asia-Pacific region.
Although Japanese officials say it is a “balanced” agreement, some trade experts have cast doubts on the degree of trade liberalization it embodies as the United States will keep its existing tariffs on Japanese auto imports.
Japan will inevitably lose its leverage over the United States with the trade deal reducing the incentive for the world’s largest economy to return to what is now an 11-member Trans-Pacific Partnership following its 2017 withdrawal, experts say.
“If the United States returns to the TPP, we wouldn’t need the Japan-U.S. trade pact in the first place,” a senior Japanese government official involved in the negotiations said.
The official acknowledged that the point of the pact was to make sure that the United States is treated the same as other nations in the revised TPP.
Both countries, accounting for about a third of the world’s gross domestic product, have worked to promote their own industries — agriculture for the United States and autos for Japan — in the year since Abe and Trump agreed to launch negotiations.
The United States apparently got what it wanted — reducing the cost of exporting U.S. farm products to Japan, allowing Japanese consumers to reap the benefits of cheaper U.S. beef, pork, cheese and wine.
But it is more or less the status quo for automakers, the backbone of the Japanese economy, as Japan failed to win the scrapping of a 2.5 percent U.S. auto tariff for now. Auto exports account for about a third of Japan’s trade with the United States.
“We devoted ourselves to thinking about (defending) the national interests of both countries,” Abe said alongside Trump as they reached the trade agreement on goods. “I believe President Trump made a final decision along those lines.”
Japan saw the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the formal name of the revised pact, enter into force in December, followed by a free trade agreement with the European Union in February.
Since then, U.S. farmers have felt the pinch of losing their price competitiveness in Japan, a key market where U.S. beef, for instance, competes with Australia.
Among CPTPP members, major farm product exporters — Canada, Australia, New Zealand and Mexico — reported double-digit year-on-year growth in beef exports to Japan in the first six months of 2019, according to Japanese government data. The United States, meanwhile, saw a 5.3 percent gain, though U.S. beef still accounted for about 40 percent of the market.
Wendy Cutler, vice president of the Asia Society Policy Institute, said the deal is a “success” for Trump’s trade agenda.
“If we had stayed in TPP, we would have gotten this market access two years ago,” said Cutler, former acting deputy U.S. trade representative.
“And now by returning to the market access that we received in TPP it seems to me that the administration recognizes that the TPP had many beneficial elements.”
When the latest trade deal takes effect, it will put the United States on a par with its competitors, with the current 38.5 percent levy on beef eventually cut to 9 percent in line with the CPTPP.
“It’s great for our farmers…and ranchers, and for a lot of other people,” Trump said during his meeting with Abe.
Abe apparently succeeded in satisfying Trump, who can now present a tangible outcome ahead of the 2020 presidential race and amid growing uncertainty over ongoing U.S. trade talks with China.
The deal, however, is unlikely to make Abe’s goal of promoting free trade through multilateral arrangements any easier.
“The fact that Japan negotiated with the United States on a bilateral basis won’t be taken too negatively (by others involved in multilateral trade talks),” said Mie Oba, professor at the Tokyo University of Science.
“But Japan and the United States are both advanced economies and they should not do the same thing as developing nations would be allowed to do,” Oba said, in reference to the extent of trade liberalization.
Under free trade agreements, it is often the case that tariffs on around 90 percent of total goods are scrapped. Japan and the United States will continue negotiations on the elimination of tariffs on Japanese cars and auto parts — a big portion of bilateral trade — without a specific timeframe.
At the U.N. General Assembly, Abe said Japan will be a “propelling force” toward the creation of an Asia-wide trade zone under the Regional Comprehensive Economic Partnership among 16 countries.
But it appears difficult to close that deal anytime soon, given the RCEP negotiating members include South Korea, an Asian neighbor whose relations with Japan have sunk to the worst level in years over wartime history — and most recently Japan’s trade policy.
“In a situation where ties between Japan and South Korea are frayed, is concluding the negotiations possible?” said Oba, who is well-versed in regional integration. “There is a question mark.”