Media  Global Economy  2019.06.04

Did not want to see Abe's US visit ― Japan's overly lenient trade talks with the US

The article was originally posted on RONZA on May 1, 2019
Positive feelings toward the Heisei Era

The Heisei Era ended.

The Japanese people must have had mixed feelings about the Showa Era. On the one end, people experienced the great sadness of widespread death and loss during the war, and on the other, experienced Japan's spectacular recovery from the ruins of the war and its achievement of substantial economic growth and prosperity.

Even in the Heisei Era, Japan was faced with economic crises such as the collapse of the bubble economy, the collapse of the Lehman Brothers, and a number of natural disasters as the volcanic eruption of Mount Unzen and Fugen-dake, the Great Hanshin-Awaji Earthquake, the Great East Japan Earthquake, the 2016 Kumamoto Earthquakes, and the torrential rains in western Japan. Despite these rather consequential events however, many Japanese seem to take an overall positive view of the Heisei Era.

This is because the Japanese people feel gratitude toward the Heisei Emperor Akihito and Empress Michiko for showing, by both words and deed, their strong determination to attain peace and nonviolence by visiting regions such as Okinawa and Saipan and expressing their deepest sympathies for the great suffering that their populations experienced during the war , and for being among the first to visit disaster-stricken areas to offer encouragement to affected residents.

Many people must agree with the words of a person who visited the Imperial Palace in Tokyo on April 30, stating "I am really grateful to the Emperor and Empress for having stayed close to the Japanese people for such a long time."

Did not want to see Abe's US visit

In the meantime however, there was a scene that I would have preferred not to have seen at the beginning of the Golden Week holidays: Prime Minister Shinzo Abe's visit to the US.

The Asahi Shimbun described the golfing and general rapport between Prime Minister Abe and President Donald Trump as "hugging diplomacy."

On the other hand, some people openly appreciate the three meetings of the two leaders within such a short period of time as a positive indication of the health of the Japan-US relationship.

However, frequent meetings do not necessarily indicate a positive diplomatic relationship. The frequency of meetings could also importantly increase when problems arise. British Prime Minister Theresa May, who has been faced with the Brexit crisis, had to hold frequent meetings with President Jean-Claude Juncker of the European Commission and President Donald Tusk of the European Council.

With Prime Minister Abe's visit to the US, President Trump seemed to have been in an exceptionally good mood.

In a recently released report, President Trump is suspected of obstructing justice by pressuring those concerned with the Russia investigation to fire Special Counsel Robert Mueller, who had been investigating alleged Russian interference in the 2016 US presidential election, for which some Democrats have started to voice the opinion that the President should be impeached. Amid such a situation, it must have been a pleasant moment for President Trump to be flattered by Prime Minister Abe.

The visit loaded with gifts

Well, what benefits will the close friendship between Abe and Trump bring to Japan?

When China was once a great power in Asia, it had described its neighboring countries' tributary diplomacy as "to gain much with small gifts." It meant that China sent envoys from neighboring countries back home with gifts far greater in value than those they had brought to China.

Maybe, it would not be appropriate to liken Prime Minister Abe's US visit to tributary diplomacy, but the US is currently the world's largest economy. If it were China in the past, Prime Minister Abe would have received great gifts exceeding those that he had brought to the country on his return home.

However, from the news that I have accessed so far, Prime Minister Abe seems to have returned home with almost nothing despite the many gifts he brought to the US.

At a joint news conference, Trump said that he will end Japan-US trade talks in May, startling Prime Minister Abe who wishes to conclude the talks at least after the election of the House of Councillors. However, in making such a statement, Trump must have obtained substantial concessions and commitments from Prime Minister Abe.

Furthermore, at a convention held immediately afterwards, Trump spoke to his supporters, stating that Prime Minister Abe had promised to have Japanese manufacturers such as Toyota invest 40 billion dollars (equivalent to 4,600 billion yen) into their US auto manufacturing facilities. If this is true, it would be a considerable gift to the US.

If Japan gives as much as it can to the richest country in the world and receives nothing in return, wouldn't the rich US become even richer and Japan even poorer? If this is the case, China in the past would have been much better than the US.

Unilateral Japan-US trade talks

In Japan-US trade talks, the acceleration of negotiations is agreed upon between leaders, and as Toshimitsu Motegi, the Minister of State for Economic and Fiscal Policy says, "early realization of a win-win outcome that benefits both Japan and the US" is sought.

Placed at a disadvantage in agricultural tariffs with the TPP11 and the Japan-EU FTA coming into effect, it is no surprise that the US wants to redress the competitive disadvantage it has with Canada, Australia, and the EU as soon as possible by accelerating trade talks and achieving a quick conclusion.

However, for Japan, there is absolutely no need to speed up the talks. On the contrary, Japan can continue to export cars to the US as it has been, even without the talks. In fact, there was not even any need for Japan to hold the talks in the first place.

Moreover, which part of the negotiations currently underway is a "win-win" situation?

Japan's agricultural tariff cuts for the benefit of US farmers would be a "win" for the US. However, both Japan and the EU consider the US's raising of auto tariffs beyond the level promised to the WTO in the name of national security as a violation of the WTO rules. Even if the US decides not to raise tariffs, it would only be to avoid violating WTO rules as it should do, and would not be a "win" for Japan. Furthermore, the US is demanding that Japan adopt currency provisions that might bind its monetary policies.

To this demand, I have not heard any news that the Japanese side has demanded the immediate removal of auto tariffs (2.5% on ordinary vehicles, 25% on trucks) or the withdrawal of the steel and aluminum tariffs raised in the name of national security. In other words, the negotiations are being carried out unilaterally with Japan only giving without demanding anything in return.

Negotiating is a give-and-take process, but this time, negotiations are give-and-give for Japan and take-and-take for the US. It is absolutely a "win-win" for the US and a "lose-lose" for Japan.

I read an unbelievable analysis made by a former member of the US Trade Representative (USTR). According to the analysis, the US Congress is not simply demanding a singular FTA on agricultural produce or goods, but an integrated package covering the service sector, and would approve no other. This former USTR member however states that there may be a way to avoid the requirement for Congressional approval.

Congressional approval would be necessary if US tariffs are to be cut. However, if Japan were to unilaterally cut its agricultural tariffs, Congressional approval would not be necessary since it does not affect US policy. In other words, the analysis states that if only Japan were to give way on the issue, there would be a way.

Needless to say, cutting Japanese tariffs would require approval by the Japanese Diet. What this former member is essentially stating is that Congressional approval would not be needed if the agreement was not bilateral, but instead unilateral, at the initiation of Japan. I have never before seen an analysis that made Japan look as foolish as this.

I was actually angry at this analysis. However, the picture of the current negotiations is just as the analysis states, and the Japanese government is providing an environment for such an analysis to be made.

The Japanese government is overly lenient on the US

Japanese government negotiators seem to consider the US decision this time not to demand more concessions from Japan beyond that which has been agreed to in the TPP on agricultural produce as a negotiation victory.

However, this only demonstrates that Japan still has not been able to overcome its "defeatist mentality." As I have already repeatedly pointed out, Japan actually out-positions the US in the current bilateral trade talks. There's no way that the US would demand more concessions from Japan beyond that which has been agreed to in the TPP.

The more the US prolongs the negotiations demanding tariff concessions that Japan cannot accept, the more the tariff disparities will be widened between the US and Canada, Australia and the EU. In addition, if a quick agreement is not reached, President Trump could lose his support in the Midwest and be defeated in the forthcoming US presidential election next year. Given the procedures for Congressional approval, the negotiations must come to an agreement within this year.

It is the US that is desperate to finalize the negotiations.

Japan's approval of tariffs on the US at the same level as the TPP means tariff cuts on US products and a concession by Japan. If the Japanese government regards this as truly grateful to the US for accepting tariffs at the same level as the TPP and making concessions to Japan, the government is outrageously too trusting.

Can Japan face TPP member countries?

In the first place, it was Trump himself who had opted to withdraw from the TPP, placing himself in a tough situation.

Consequently, Japan had to take the trouble of redoing the TPP11 negotiations. Canada, Australia, Vietnam and other TPP participating countries kept company with Japan to conclude the TPP11.

Would it be fair to grant the US the same terms as these countries?

Representing the TPP participating countries, shouldn't Japan do much as to impose a penalty on the US?

Not only that, if a Japan-US trade agreement is concluded and the disadvantage to US agricultural products in the Japanese market is removed, there would be no incentive for the US to return to the TPP.

Vietnam accepted the requirement that its state-owned enterprises adopt the rules under the TPP agreement in return for expanded access to the US textile market. To have Vietnam participate in the TPP11, Japan must have persuaded Vietnam that the US will eventually return to the TPP and that Vietnam will have access to its textile market.

Can Japan allow such an attitude of currying favor with Trump, who took the questionable decision to withdraw from the TPP, and disregard the interests of Vietnam, which has apparently responded to Japan's persuasion?

The risk of being too close to Trump

The riskier matter for Japan is for the Japanese prime minister to have a relationship that is too close with Trump.

The quick conclusion of Japan-US trade negotiations is nothing less than a means to provide Trump with way to obtain the farmer votes in the Midwest that are vital to his re-election. The US demanded the bilateral trade talks only because it was necessary for Trump's election ploy.

This is hostile behavior in the eyes of the Democrats. The Japanese government may be thinking that Trump will win the election at any cost.

The Democratic Party may seem to be in a muddle of having too many candidates. However, in the previous presidential election, while the Republican Party had a flood of candidates, Trump still won the election.

35-40% of qualified US voters have said they would vote for Trump under any circumstances, while 40-45% have said they would not . The decision of the remaining 20% would determine the result of the election.

Under the circumstances, Former Vice President Joe Biden, who has recently announced his run for president, is appealing to an anti-Trump theme rather than focusing on policies. His strategy is to first secure the solid votes of the anti-Trump cohort of the voting population. If Biden wins the Democratic Party presidential primaries and becomes the nominee for president, it is highly possible that he will win the US presidential election, having strong support in the Midwest.

Then, will Prime Minister Abe conduct the same "hugging diplomacy" with Biden? The calm and reassuring Biden, who has a wealth of life experience, will probably see into Prime Minister Abe's mind.

Furthermore, even if Trump were to win the presidential election, the Democrats are expected to hold a majority in Congress. If such is the case, Trump would be a lame duck immediately after being elected as president.

Currently, Congressional approval of the revamped North American Free Trade Agreement (NAFTA) (currently called the United States-Mexico-Canada Agreement (USMCA)) that has been agreed with Canada and Mexico is deadlocked due to opposition by Democrats. Even if a trade agreement were signed between Japan and the US, Congress would not necessarily approve it. There is no need to hurry the conclusion of such an agreement.

When I visited the US in February, my American friends ridiculed a letter of recommendation that was written by Prime Minister Abe nominating Trump for the Nobel Peace Prize. They were surprised that the Prime Minister of a country like Japan, which is not a small country obliged to obey what the US says, wrote such a letter. When I was asked how the Japanese people feel about the matter, I was embarrassed being unable to honestly reply that "they appreciate that the Prime Minister has done a good deed."

More than half of the American people do not like Trump. I cannot imagine American children in the future reading the biography of Trump as one of the highly respected US presidents in history. The attempt to pervert the course of justice by removing Special Counsel Robert Mueller had failed because Trump's close aides ignored his orders thinking that it would cause irreparable harm.

When Prime Minister Abe visits France, he says to President Emmanuel Macron that he is opposed to trade protectionism. It is Trump who has advocated trade protectionism, so Prime Minister Abe is just declaring a position that is in contradiction to Trump's in Europe. However, when he meets Trump, he writes a letter of recommendation for the Nobel Peace Prize and plays golf with him. Prime Minister Abe seems to be doing more than "staying close" to Trump, but has he "stayed close" to the Japanese people as he has publicly promised to do so?

In the thirty years of the Heisei Era, the Heisei Emperor Akihito stayed close to the suffering of the people of Okinawa and disaster-stricken areas. The Japanese people perhaps lamented the abdication of the Emperor because he has shown his feelings not only by words but also by actions.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "RONZA" on May 1, 2019.)