Newly signed deal eases US-Japan trade tensions

Friday, 2019-09-27 12:12:15
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US President Donald Trump (R) and Japanese Prime Minister Shinzo Abe hold a meeting on trade in New York, September 25, 2019, on the sidelines of the 74th session of the United Nations General Assembly. (Photo: Getty)
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NDO – US President Donald Trump and Japanese Prime Minister Shinzo Abe have signed a document that is considered by both sides as the “initial phase” of a US-Japan trade agreement. Despite not being a comprehensive deal, the document is still an important achievement, helping to relieve tensions between the two countries, which have lasted for over a year, related to the thorniest issues, including the taxes on Japanese automobiles and US agricultural products.

In a joint statement issued after their talks and the signing of the document on the sidelines of the 74th session of the UN General Assembly in New York (US), the leaders affirmed that the two countries have reached a bilateral trade agreement on reducing tariffs on agricultural and industrial goods. At the same time, they agreed to curb actions that run counter to the spirit of initial commitments, while striving to work out solutions to the tax-related disagreements and continuing to conduct consultations to reach a comprehensive deal within the next few months.

Under the “initial-phase” agreement, Japan will reduce tariffs on US$7 billion worth of agricultural goods imported from the US, including beef, pork, wheat and buckwheat. In return, the US will reduce taxes on US$40 million of agricultural products and loosen the duty-free quotas on Japanese beef imports. Notably, the text of the agreement contained no explicit assurances, but the Japanese side received the strong commitment of the US President to not raising tariffs on car imports from Japan.

The leaders of the two countries welcomed the signing of the initial trade deal after more than a year of negotiations and affirmed that they would implement it in a full, transparent and honest manner. PM Abe said he believed that the pact would benefit both countries, leading Japanese investments to increase and the two economies to grow further as it comes into effect, expected from January 1, 2020, after the two sides complete domestic approval procedures. Japanese officials and businesses also assessed that the agreement would contribute to the stable development of trade between the two countries.

President Trump called the deal a “huge victory” for US farmers. The US Wheat Associates issued a statement saying that the new agreement would lower Japanese tariffs on US wheat to the same level paid by producers in Canada and Australia, the two countries that joined Japan to sign the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a regional trade pact without the participation of the US.

Positive assessments were delivered by the two countries’ officials and businesses because, regardless of being just an “initial-phase” pact, the deal has clearly swept aside most of the core concerns and disagreements concerning trade relations between the US and Japan. Notably, the US made clear its commitment not to include Japanese cars in the “Black Tariff”. Automobiles are the commodity with the largest proportion in any trade agreements between the US and Japan, with a total value of US$67 billion. Thus far, President Trump has shown constant concern that US car manufacturers do not have fair access to the Japanese market. The US Department of Commerce once published a survey declaring that car imports from Japan are a “national security threat” to the US. As shown in statistics, Japan currently exports about 1.7 million cars to the US each year, equivalent to 10% of auto sales in the US market. Therefore, the US message to not increase taxes on car imports is good news for Japan. According to US Trade Representative Robert Lighthizer, the two countries will resolve the car issues in the next round of negotiations, scheduled for April 2020.

For the US, reaching a trade deal with Japan is an important victory. The US economy was said to have suffered a loss after the White House quit the Trans-Pacific Partnership (TPP), the premise of the later CPTPP. In addition, a trade agreement between Japan and the European Union (EU) that came into effect in February made the situation even more disadvantageous for the US. In the context of the US having to resist against the negative impacts from its trade disputes with China, the newly signed US-Japan trade deal opens a wider door and a greater opportunity for the US agricultural sector.

As for President Trump, the pact with Japan helps him reassure US farmers and attract more favour from voters ahead of the important elections in the US. At the same time, it helps to expand the efforts to reduce the bilateral trade deficit with the partners that he is pursuing. As for the world, the newly inked trade pact between the US ad Japan somewhat eases concerns about a new trade war between economic powers.