05.09.2018 Author: Vladimir Terehov

Japan and the USA Attempt to Avoid a Trade War


On August 9-10 American and Japanese ministerial-level delegations met for talks on a range of issues related to trade and the economy. Some of these issues are dominated by various aspects of the two countries’ relationship with each other, while others concern turbulence in the processes underlying international trade as a whole.

It is important to note that a major factor in the growth of that turbulence has been the Trump administration’s determination to “bring fairness” to trade between the USA and its main foreign partners.

So far, in the area of trade and the economy, the quarrel has been dominated by aggressive rhetoric on both sides. The actual measures that the parties have taken against their opponents are, largely, symbolic.

To use an image from boxing, the two main economic and political heavyweights, the USA and China, have limited themselves to exchanging light blows, resulting in losses of approximately 50 billion dollars’ worth of trade on either side. That is not a huge amount, given the fact that the total trade between the two countries amounts to some 600 billion dollars a year.  And negotiations aimed at reaching some kind of compromise are continuing. It is interesting to note that the (most recent) exchange of blows between the USA and China, costing 16 billion dollars, took place at the same time as the start of the latest round of talks in Washington.

Japan is another of the USA’s most important trade partners. In all of the many meetings between the leaders of the two countries, issues related to trade and the economy have been, and remain, at the top of the agenda. But, as yet, there has been no progress in the parties’ attempts to reconcile their default positions. These positions were set out by the Japanese newspaper Yomiury Shimbun the day before the above meeting between expert delegations in Washington, headed by US Trade Representative Robert Lighthizer, and the Japanese Minister for the Economy, Toshimitsu Motegi.

As part of the talks, which have, once again, ended unsuccessfully, the parties discussed, in principle, three pressing issues – or problems- in trading relations between Japan and the USA:

– The problem of what format should be used for a future agreement which would lay down some long-term frames of reference and rules for the two countries’ trading relations

– The problem of a possible decision by Washington to hike its tariffs on imported cars

– The problem of (as above, a possible) decision by Tokyo to decrease its tariffs on imported agricultural products.

The first of these problems concerns the “state philosophy” that has emerged in the area of foreign trade between the two countries. The other two problems relate to the most important items on the list of each country’s imports and exports.

As for the foreign trade “philosophies” of Washington and Tokyo, over the last year and a half (i.e. since Donald Trump became President of the USA), these have developed in completely opposite directions.

The new US administration has, apparently, decided to reduce the length of the USA’s foreign policy commitments (or, possibly, abandon them entirely) in order to cut its enormous annual trade deficit (which stands at some $ 800 billion). What is more, Washington took on those obligations during the Cold War, which ended a long time ago, and the conditions that applied then have almost nothing in common with those that apply in the international political arena today.

The only way to obtain concessions from key trading partners is to negotiate bilateral agreements, which means that separate agreements need to be concluded with each individual trading partner. Those political goals may explain Donald Trump’s decision to withdraw from the multilateral trade and economic agreements that were favored by the Obama administration. Seen from that perspective, his decision seems completely logical.

The first victim of Donald Trump’s shift in policy was the Trans-Pacific Partnership, which Japan made an immense effort to save, in the process displaying an impressive command of foreign policy. Because, unlike the USA, the world’s third largest economy has ambitions to extend its political influence in the international arena, and sees participating in (and, if possible leading) multi-national projects as an important aspect of such influence.

That is why Japan would like to resolve all the trade and economic problems in Washington’s relationship with Tokyo by reviving the TPP, something the Japanese Prime Minister Shinzo Abe has proposed to Donald Trump in each of their meetings. But, as we have said, without success.

In the Washington talks referred to above, the expert groups also failed to make any progress in their attempts to reconcile the two parties’ default positions, despite the fact that each party set out tempting morsels as bait for the other party to bite on.

The American delegation openly hinted that, under the possible bilateral trade treaty, Japanese car manufacturers could be exempted from the 25% duty imposed on cars imported into the USA. Donald Trump’s government has been talking about such plans since this Spring.

However, the USA is the most important market for the Japanese auto giants. Toyota Motor Corp. alone, sells some 700 000 cars to the USA. The company has already calculated that if the tariffs are imposed (as already mentioned, they are still just a possibility) then it may incur annual losses of some 4.5 billion dollars.

In turn Japan has stated that the long-term issue of granting American meat producers access to the Japanese market could easily be solved by means of the Trans-Pacific Partnership. Australia is a good example – as a party to the new TPP agreement, it is gradually being freed from the burden of the tariff barrier to its meat exports to Japan – which currently stands at almost 40%.

The meeting in Washington ended, as already noted, without any progress, and the next round of talks is due to take place in September. At the end of that month the leaders of both the USA and Japan are to meet on the sidelines of the next session of the UN General Assembly.

If only for internal political reasons, both Shinzo Abe and, even more, Donald Trump are in real need of some positive results. Particularly for the latter: the results of the midterm elections for seats in Congress, at the beginning of November, will make or break his political career.

In conclusion, it is important to note that the implications of the trade and economic problems in relations between Japan and America are already being felt – in a very real way- in the two countries’ foreign policies.

After all, in the last month, based on the similarities in their “state philosophies” in matters of trade and economic relations with the rest of the world, both Japan and China, the two leading Asian powers, have been feeling their way along converging political paths. And not without some success.

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook.”