Media Global Economy 2019.10.24
On September 25, Japan and the US largely agreed on the trade talks on goods, and the leaders of the two countries signed a joint statement. At a press conference held after the talks, Prime Minister Shinzo Abe hailed the agreement as "a win-win deal that benefits all the people of the two countries."
However, in reality the agreement is a win for President Donald Trump, helping him retain votes of the Midwest farmers, who had almost detached themselves from Trump due to the US-China trade war, but a loss for the people of both Japan and the US.
Many of the swing states that determine the outcome of US presidential elections lie in the Midwest, including Pennsylvania, Ohio, Michigan, and Iowa. If Trump does not win in the Midwest, he will have no chance of re-election.
The Rust Belt in the Midwest is also an agricultural region called the Corn Belt. Trump cannot afford to have the Midwest farmers, who had traditionally backed the Republican Party, vote for a Democratic candidate.
Because Trump pulled the US out of the Trans-Pacific Partnership (TPP), Japan's tariffs on beef and pork imports from countries such as Australia, Canada, and Denmark have been reduced to a level lower than the tariffs on US products under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) and Japan-EU free trade agreement (FTA). If these US livestock industries are damaged by a reduction in exports to the Japanese market resulting from the tariff gap, the Midwest farmers that supply soybeans and corn for feed will also suffer damage.
The problem would be resolved if the US returned to the TPP. But for Trump, who pulled the US out of the TPP criticizing that it was a horrible deal, the only choice was to hold bilateral free trade negotiations with Japan.
On the other hand, Japan did not need an FTA with the US, because even without the FTA, it was able to export its automobiles to the US just as before.
However, Japan agreed to enter the FTA talks with the US because it overreacted to the Trump administration's threat of imposing additional auto tariffs on Japanese vehicles on grounds of national security under Section 232 of the Trade Expansion Act of 1962.
I do not believe that the US can impose additional tariffs on auto imports. Steel tariffs have been also raised on the same grounds of national security, but steel, which is only used as raw material, is entirely different from automobiles, which are purchased by many Americans as final consumption goods. The raising of auto tariffs was to be decided in May of this year, more than two years after Trump's inauguration, but the decision has been postponed for another 180 days.
To avert additional tariffs on its auto exports, the European Union (EU), which contains automobile industries of Germany, France, Sweden, etc., initially also agreed to hold trade talks towards tariff elimination with the US. This was because Trump had promised that the US would not impose additional tariffs on auto imports while negotiations are underway. After seeing and following this EU decision, Japan accepted bilateral talks with the US.
However, the EU has not yet started negotiations with the US, surmising from the subsequent circumstances that the US is unable to impose additional auto tariffs.
In the Japan-US talks, Abe fully responded to the call for measures to placate the Midwest farmers and agreed to lower beef and pork tariffs.
The holding of Japan-US talks after the US arbitrarily pulling out of the TPP and placing US agricultural products at a disadvantage then rectifying the disadvantage is totally Trump's setup of stirring up and solving the problem by himself, but the US farming industry gives Trump full credit. In addition, Abe, who is good at reading the situation, promised to buy excess US corn.
Some Japanese mass media took the government propaganda at face value and reported that the Japanese government considered it an achievement to have averted setting low-tariff import quotas for rice and dairy products such as butter, which were conceded in the TPP negotiations.
However, the quotas on dairy products such as butter, which Japan conceded in the TPP negotiations, are open to all TPP member countries. Among the TPP member countries, only New Zealand and Australia have export competitiveness in such items. The US has no export competitiveness, and this import quota could not have been utilized by the US dairy milk industry.
As for rice, the US has not even fully used up the current non-tariff quota of 100,000 tons. Should a rice import quota be set for the US at the same level of 70,000 tons as accorded in the TPP, it would be impossible for the US rice industry to make use of it. Even politically, California, which exports rice to Japan, is a state where the Democrats are sure to win (blue state), and Trump's efforts for the rice industry will not lead to his re-election.
The elimination of the 2.5% tariff on car imports, which the US had promised in the TPP, was left to future negotiations, but would likely not be made until after next year's election. A 2.5 percent tariff may appear small, but Japan's car exports to the US are high-grade vehicles such as Toyota's Lexus, and the tariff burden amounts to 1 billion dollars (110 billion yen) every year. Japan could not draw forth concessions from the US even of the same level as in the TPP. This was because Trump did not want to lose votes of workers in the automobile industry in the Midwest.
Not only that, Abe even presented Japanese automakers' plans to build new plants to draw Trump's interest. This is also another election measure aimed at the Midwest voters.
Trump had to pressure the Ukrainian president in order to uncover the backroom dealing in Ukraine of Democratic candidate Joe Biden, who will be Trump's powerful rival in the 2020 election.
However, Japan's prime minister read the situation for Trump and readily gave hand to Trump's election campaign even without being asked to do so.
A comprehensive FTA that encompasses services, investment, intellectual property rights, etc. will require approval by the US Congress, which may not come in time for the presidential election. FTAs limited to goods will not require Congressional approval.
Japan responded to this situation. The Abe administration had been criticized by opposition parties and the Japanese mass media that bilateral negotiations with the US would eventually encompass services, investment, etc. and may place Japan at a disadvantage. The administration rather came up with the term "trade agreement on goods (TAG)" and offered the US that it will agree to negotiations only for an FTA limited to goods.
As it is, Trump regarded the new trade agreement as the "first phase" and expressed hopes to "work on a more comprehensive agreement (encompassing services, investment, etc.) in the fairly near future." This is clearly stated in the press statement released by the White House. Japanese opposition parties will probably go on the offensive, saying "See, we told you so."
Abe can no longer claim to Trump that the negotiations are to be limited to TAG. It is clearly stated in the Joint Statement of Japan and the United States that "Japan and the United States intend to (snip) enter into negotiations in the areas of customs duties and other restrictions on trade, barriers to trade in services and investment, and other issues in order to promote mutually beneficial, fair, and reciprocal trade." The bilateral negotiations will go just as have been pointed out by the opposition parties and mass media. Japan can no longer use the card on agricultural tariffs. The negotiations will be miserable for Japan being pushed around by the US.
Instead of reaching the Japan-US bilateral agreement, if the US had rejoined the TPP that covers issues that the US demands of China in the US-China trade war, such as banning forced technology transfers, intellectual property protection, regulation of state-owned enterprises, etc., China may have been pressured to join the TPP, which would have brought benefits to the world economy.
However, the US managed to remedy the disadvantage of US agricultural produce in the Japanese market by the bilateral trade agreement. Being fully satisfied, the US will probably not seek to rejoin the TPP.
The agreement was a victory for Trump, but a loss for the US.
Concluding a bilateral trade agreement also runs against Abe's claim of "strengthening the multilateral free trade system," which he proudly upholds at various international conferences.
If he advocates multilateralism, he should have held out for the US rejoining the TPP. Abe advocates multilateralism to countries other than the US but accepts a bilateral deal with the US, yielding to US demand. How will the world regard such a country?
Not only Abe but also the officials preparing his speech at the Prime Minister's Official Residence seem not to notice the contradiction between what they are saying and what they are doing.
Abe sacrifices everything to cooperate with the re-election of Trump, who is likely the most scandalous president in American history.
Trump is questioned about obstructing investigations on Russian meddling. Even so, Trump retains the office of presidency because there is an unwritten law of the Department of Justice that a sitting president cannot be indicted while in office. This was also clearly stated by Special Counsel Robert Mueller in his investigation of Russian meddling.
If Trump loses in the presidential election, he would be arrested and indicted. Trump earnestly wants to win the presidential election to avoid such indictment. Should the Japanese people be proud of a prime minister who assists the election campaign of a president tainted with such obloquy?
In the past, there was a close personal relationship between Prime Minister Yasuhiro Nakasone and President Ronald Reagan in the 1980s. But the Japan-US beef and citrus fruit negotiations, held concurrently at the time of their administration, took ten years to finally conclude, extending beyond the period when the two leaders were in office. I do not think that import quotas on beef and citrus fruit served in the national interest of Japan, but at least Nakasone did not instruct the Minister of Agriculture, Forestry and Fisheries to make concessions in the beef and citrus negotiations in order to please Reagan.
Trump says, "America First." But Abe maintains "Trump First," not "America First," believing that it will serve in the national interest of Japan.
If the next US president is a Democrat, how will the US view Japan, which has without reserve backed up the election of the opposition candidate?
At the very least, it is unlikely that the Democratic president would declare the Japan-US relationship to be the most important bilateral relationship in the world.