Media  Global Economy  2018.02.20

Beware! Don't Take Trump's Bait: The U.S. is in an Overwhelmingly Weak Position Regarding TPP. Japan Should Not Subserviently Take Orders

The article was originally posted on Webronza on January 30, 2018

According to reports, U.S. President Trump said in an interview with CNBC on January 25 that he would reconsider a U.S. return to the Trans-Pacific Partnership (TPP), which it withdrew from last year, if it was able to renegotiate more favorable conditions. "I would do TPP if we were able to make a substantially better deal," he said.

Based on his remarks before and after the interview, this position appears to have been discussed and prepared in advance within the administration, so it was not one of his usual off-the-cuff remarks posted on Twitter. However, in his official speech at the World Economic Forum meeting in Davos, Trump said the U.S. is prepared to negotiate mutually beneficial trade agreements with TPP members, either bilaterally or multilaterally, so he did not clearly say that the U.S. would return to the TPP but rather spoke vaguely.

In any case, his attitude has changed completely compared to when he proudly announced immediately after his inauguration that the U.S. would pull out of the TPP, calling it a very bad deal. This change of heart can be attributed to concern that U.S. agricultural products could really be driven out of the Japanese market now that an agreement has been reached on TPP 11.

American farmers have traditionally supported the Republican Party. There are now concerns that if farmers who would be harmed by a withdrawal from the TPP change their attitudes, then the Republicans as the government party could lose their majority in Congress in the November midterm elections. The Republicans may be fine in the Senate since few senators will be up for election, but they face a considerable risk of losing in the House of Representatives, where all seats will be contested. There is a possibility that President Trump will become a lame duck after the midterms.

Meanwhile, Trump cannot ignore the voices of workers in the Rust Belt who claim their jobs were lost to trade - the very people who voted him as the president. This is what led to Trump's statement that although the TPP is not a good deal, he would consider participating if it were improved.

Who has trade negotiating authority in the U.S.?

Until now, Trump argued that the TPP is a very bad deal. However, he has never indicated what specifically is bad about the agreement. He made an abstract argument in his speech at Davos, calling for fair and mutually beneficial agreements.

Under the U.S. Constitution, the power to conduct trade negotiations lies with Congress. Congress has transferred its powers regarding trade negotiations to the federal government until June 30 of this year (this can be extended by three years if the president requests it and Congress does not vote against it). In other words, it is unclear if President Trump will have the power to conduct trade negotiations in July of this year and afterward.

Even when the power to conduct trade negotiations is transferred to the executive branch, congressional approval is still required for an agreement to take effect, so the executive branch has conducted negotiations while closely communicating with relevant members of Congress.

The TPP agreement was reached under the Obama administration of the Democratic Party, but it could not get congressional approval due to objections by senior Republicans. Senate Majority Leader Mitch McConnell expressed dissatisfaction that tobacco control measures were exempted from the ISDS provision (a rule that allows investors to sue the host countries of their investments by bringing the matter before the International Court of Arbitration), while Chairman Orrin Hatch of the Senate Finance Committee, which is charged with approving the TPP, expressed dissatisfaction that data exclusivity for new medicines of the pharmaceutical industry last eight years instead of the 12 years under U.S. law. Meanwhile, some members of the Democratic Party called for provisions to restrict weakening their own currencies to increase exports or decrease imports.

The U.S. may seek those measures under the premise of improving the TPP, but those issues had faced strong objections from the other TPP members and a compromise led to the agreement. So even if the U.S. brings up those issues again, the other TPP members will not agree to give in. Even the U.S. treasury secretary opposed making foreign exchange manipulation an issue.

To begin with, there is a possibility that the midterm elections in this November will result in a major change in the composition of Congress. So even if the U.S. government negotiates by speculating the opinions of Congress and produces results, there is no guarantee that the post-midterms Congress will approve the deal.

Japan and Australia have the upper hand

Trump has taken a high-handed attitude, saying that the U.S. is willing to participate in the TPP if it can receive more favorable terms. He must believe that the demands of the superpower U.S. will be accepted for sure.

But that is a big mistake.

Japan has little to benefit economically from a U.S. return to the TPP because the original TPP did little to improve or expand Japan's access to the U.S. market.

Countries such as Canada, Australia, Mexico and Chile have already entered free trade agreements with the U.S., so they can export tariff-free to the U.S. market even without the TPP. In addition, countries such as Canada, Australia, Chile and New Zealand can export products such as wheat, beef, pork, cheese and wine to the Japanese market through TPP 11 under better terms than those for the U.S., so those countries prefer not to have the U.S. rejoin the TPP (in fact, that is why the U.S. agricultural industry strongly sought a return to the TPP). Vietnam would benefit from a U.S. return through expanded access to the U.S. textiles market, but a drawback for Vietnam would be the revival of disciplines that had been frozen under TPP 11.

In other words, few TPP 11 members seek a U.S. return. So the only option for the U.S. in conducting negotiations is to plead for acceptance into TPP 11. Regarding negotiations for joining TPP 11, the relative position of the 11 TPP members and the U.S. is equivalent to that of a yokozuna (sumo grand champion) and a juryo (sumo wrestler in the lower division).

Of course, those within the Japanese government who believe in the America First policy may act behind the scenes. However, Japan is not the only country that will deal with the U.S. in talks to participate in TPP 11. The U.S. has to deal with all 11 nations. This is not a bilateral negotiation between Japan and the U.S. The U.S. cannot rejoin unless it can convince all 11 nations.

There have been articles arguing that the Japanese government needs to try to get the U.S. to understand that negotiating the trade deal again will be difficult, but I do not think that is necessary. The media seem to believe in America First or they are afraid of the U.S.

Japan should just sit back confidently. There is no need for Japan to subserviently take orders from the U.S., and it should not do so. Japan should act like a yokozuna and stand up only after the other side makes a request to join the TPP.

Even if the U.S. brings up TPP participation talks at this point in time, Japan should propose that the matter be shelved until after the November midterm elections are finished and the intentions of Congress become clear. If the U.S. requests talks over a bilateral FTA between Japan and the U.S., Japan should say that its trade policy has shifted toward a "TPP First" policy. Japan should place priority on ratifying TPP 11 in the Diet and bringing the agreement into effect quickly.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on January 30, 2018.)