By Aoyama Naoatsu and Wakai Takumi
On November 17, the Japanese and U.S. governments agreed to facilitate a new framework for discussing trade issues. While the prospect for the U.S.’s returning to the Trans-Pacific Partnership (TPP) agreement remains dim, the launch of the new initiative reflects the two countries’ going on the defensive as China pursues intensive economic diplomacy. Meanwhile, Japan-U.S. bilateral trade negotiations have effectively been frozen, forcing Japan to reconsider its trade strategy.
“Our close collaboration will support the Biden-Harris administration’s economic framework for the Indo-Pacific and help create sustainable, resilient, inclusive, and competitive trade policies that lift up our people and economies,” stressed USTR Katherine Tai on November 12 [sic], as she explained the significance of the new framework after concluding a meeting with Minister of Economy, Trade and Industry Hagiuda Koichi and other officials. Phrases such as “sustainable” and “inclusive (meaning redressing income disparity)” are used often by the Biden administration and Tai, who are conscious of the fact that the Trump administration gained popular support by opposing free trade and eventually withdrew the U.S. from the TPP.
The concept of the new economic framework for the Indo-Pacific referred to by Tai was already included in the remarks President Biden made at the Oct. 27 East Asia Summit meeting. Biden suggested at the time that the framework would be “sought together with partner nations.” The framework includes such goals as promotion of trade, standardization of digital economy and advanced technologies, strengthening of supply chains, and decarbonization, though it still lacks substance. The U.S. initiative to formulate a new framework reflects difficulties the Biden administration faces in demonstrating its commitment to the Indo-Pacific region, even in a limited manner, while returning to the TPP remains difficult.
Former administrations’ negotiations on automobile tariffs are now frozen
The new framework was born as part of the policy of the U.S. administration. Such a loosely bound framework will not bring disputes among participants into the open. On the other hand, it won’t work as an effective tool to restrain China as would the TPP, a binding treaty. Additionally, the freezing of Japan-U.S. bilateral trade discussions has put the fate of negotiations toward complete lifting of tariffs on Japanese automobiles (tariff rate: 2.5%) and auto parts (2.5% on most), which former Prime Minister Abe Shinzo hoped to achieve, in limbo.
The Japanese government welcomes the new framework, however, seeing it as aligned with the U.S. policy of positive engagement in the Indo-Pacific region. “We understand that the U.S. is seeking to cooperate with allies in formulating the framework, instead of asking others to join what was created by the U.S.,” said a senior METI official.
Nevertheless, the framework is not likely to become the key to opening better prospects for Japan. Japan relies on the U.S. for its security and tends to find itself in a weaker position in bilateral trade negotiations. In the past, Japan attempted to negotiate with the Trump administration with hopes for the U.S.’s returning to the TPP but ended up holding bilateral talks instead after the U.S. administration threatened to impose retaliatory tariffs. Although the freezing of the “second stage” of the bilateral trade agreement (effectuated in January 2020) under the Biden administration didn’t come as a total surprise to the Japanese government, it is still a negative development as it will hinder bringing the benefits of liberalization to the Japanese auto industry.
Japan is at an impasse amid the emergence of China. It is now unable to establish a new order in multinational trade through the U.S.’s return to the TPP or strengthen bilateral relations with the U.S. through the free trade agreement (FTA). Even though Japan has insisted on waiting for the U.S. to return to the TPP, because “the U.S.’s returning to the TPP is desirable” (a senior METI official), it is probably inevitable that Japan will be forced to review its strategy at this time.