The case that Japan secured a good trade deal with the US
Critics say Tokyo has surrendered its leverage but others argue it made important gains
Greetings from Tokyo, where it has been a slow start to the week for the FT bureau given headaches induced by England’s disappointing defeat to South Africa in the final of the Rugby World Cup. But the tournament was a huge success for Japan, on and off the pitch — a reminder, were any needed, of what the country can achieve when it sets its mind to it.
Japan also believes it is doing well in trade, striking big pacts with the EU and the Trans-Pacific Partnership, but, as we discuss below in today’s main piece, the recent US deal is more controversial. Today’s chart of the day looks at Cameroon’s exports to the US after Donald Trump slapped trade restrictions on the country last week, while the obvious policy watch today is whether and when the US and China will sign their phase one agreement, potentially easing the recent trade wars.
US-Japan trade
The US-Japan deal leaves many important areas of trade, including automobiles, untouched © Bloomberg
The recent US-Japan free trade deal, struck in September at breakneck speed, is something of an oddity. On one hand, it is a strikingly conventional piece of trade liberalisation, under which Japan cuts tariffs on beef and other foodstuffs while the US cuts tariffs on a miscellany of goods, including machine tools, musical instruments and green tea. There is a separate agreement on digital trade.
On the other hand, the deal leaves many important areas of trade, including automobiles and almost all services, untouched. As a result, many experts question whether it meets the World Trade Organization’s requirement to cover “substantially all the trade between the constituent territories”.
Japanese critics say that by cutting its tariffs on beef, Tokyo has surrendered its leverage with the US, and will never be able to get rid of the remaining US tariffs on automobiles and trucks. In a piece titled “The defeatism of calling the US-Japan deal a win-win”, the Newsweek Japan columnist Akihiko Reizei takes the Japanese negotiators to task for their failure to get anything on the crucial issue of car parts and for throwing the Japanese market open to US technology giants such as Amazon and Google.
But according to one Japanese negotiator, this is a “simplistic analysis”. Based on interviews with a number of officials — including an on-the-record conversation with the FT last week with chief negotiator and now foreign minister Toshimitsu Motegi — here is the case that Japan got a good deal.
First, Section 232 tariffs. Mr Motegi said the US had given “unusually clear” assurances, both in the leaders’ summit and their joint statement, that it would not impose national security tariffs or import quotas on Japanese automobiles. That is implicitly backed up by the ability of either side to terminate the deal by giving four months’ notice. If the US did impose Section 232 tariffs, Japan could quit the deal.
Mr Motegi also said the deal committed the US to negotiate on auto tariff reductions, though whether that means much to US president Donald Trump is an open question.
Japan’s leverage or lack thereof is an issue. The reduction in tariffs on beef was a big card to play. However, Japan still has others: the deal did not touch rice, forestry or fisheries. (One cynical ex-official suggests that Mr Trump had little interest in the rice farmers of Democratic-voting California.) What is more, beef tariffs will never fall to zero in any of Japan’s trade deals and, as the country’s farming population ages and shrinks, its need to protect the farming sector will diminish.
On exports, Mr Motegi said he was able to get a reduction of tariffs in areas where Japanese companies “have a high interest in exporting or the trade volume is great”. Machine tools are a big industry for Japan; they will now get a leg up over German rivals. The inclusion of green tea, melons, soy sauce and a quota for Wagyu beef also points to a desired future for Japan as an exporter of high-end luxury foods.
The digital part of the deal is held to be an example of Japanese prime minister Shinzo Abe’s concept of “data free flow with trust”, which he pushed as chair of the G20. Japan hopes to internationalise parts of the deal. As the home of a considerable video game and animation industry, it also believes it can hold its own in digital trade with the US.
Ultimately, the question is whether Japan meets its strategic goals, and for Tokyo, the security relationship with the US always comes first. The US may have got more of what it wanted in the short-term, but Japan made some gains, and Mr Abe has kept his close relationship with Mr Trump intact. In that sense, it truly was a win-win.
Charted waters
The US president last week removed Cameroon’s preferential status under the African Growth and Opportunity Act (AGOA), citing human rights concerns. This chart looks at the country’s major exports to the US, with crude oil playing a much bigger role in the past two years.