US, Japan accelerate trade talks: what’s at stake

Having trouble keeping track of all the US trade negotiations on the go? Well, there’s another one to add to the growing list.

More than two years after President Donald Trump pulled the US out of the Trans-Pacific Partnership (TPP) trade deal, the US and Japan are negotiating a bilateral agreement.

Talks between the two countries, which collectively account for about 30% of the global gross domestic product, got underway in April. Trump also recently held one-on-one talks with Japanese Prime Minister Shinzo Abe at the White House. And though the President said discussions are “moving along nicely,” it’s clear there are aspects the two sides don’t agree on.

Here’s a look at what’s happening and what’s at stake with the US-Japan trade talks.

What’s the situation?

After Trump pulled the US out of the TPP, the other members, including Japan, went ahead with the deal, which came into force at the end of 2018. Japan also concluded trade talks with the European Union last year. Those agreements have created a disadvantage for many American exporters, who risk losing their share of Japan’s import market to countries with lower tariffs.

Wine is a perfect example. Wine entering Japan from the EU and Chile (a member of the TPP) don’t have any duties. And wine from Australia (also a TPP member) has a 5.6% tax that will soon drop to zero. But wine from California heading to Japan has a 15% tariff.

Trump said his motivation for leaving the TPP was because of his preference for bilateral trade agreements with other countries. Though Japan initially resisted holding bilateral discussions with the US in hopes that it would rejoin the TPP, in September 2018 Abe and Trump reached an agreement to start trade negotiations.

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What’s on the table?

Much like the US’s pending trade negotiations with the EU, get ready to hear a lot about agriculture and auto.

The US wants Japan to remove tariffs, along with other concessions, for American agricultural products.

“We’ll be discussing, very strongly, agriculture. Because, as the Prime Minister knows, Japan puts very massive tariffs on agriculture — our agriculture — going for many years, going into Japan. And we want to get rid of those tariffs,” said Trump during his meeting with Abe.

Trump said he wants Japan to remove its levies on agricultural products “because we don’t tariff their cars.” However, Abe noted that the US has a 2.5% levy on Japanese cars, while Japan has no tariffs on American autos.

Abe also pointed out that since January 2017, Japanese companies have invested $23 billion in the US, creating 43,000 American jobs.

Japan’s main interest is to avoid additional US tariffs on its auto exports, which would damage the country’s economy. Trump is currently debating whether to put tariffs of up to 25% on imported cars.

The President has also made it known that he isn’t pleased with Japan’s trade deficit with the US, much of which comes from auto exports. According to a statement from the US Trade Representative (USTR), American officials have raised the issue of the US’s “very large trade deficit with Japan,” which amounted to $67.6 billion in goods in 2018.

The USTR statement noted that the two countries will also discuss digital trade.

Currency policy

Another topic of potential debate for these talks surrounds currency policy.

In its negotiating objectives for a trade deal with Japan, the USTR included a provision for currency as one of its goals.

“Ensure that Japan avoids manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage,” reads the provision.

US Treasury Secretary Steven Mnuchin previously indicated that Washington wants trade deals to include language that prevents the other country from manipulating its currency to boost exports. A similar clause is included in the United States-Mexico-Canada Agreement (USMCA) and will likely be part of any deal the US reaches with China.

However, Japanese Finance Minister Taro Aso said his country wouldn’t accept discussions linking currency policy with trade matters.

“I told him that Japan cannot agree to any debate linking trade policy with monetary policy,” said Aso after meeting with Mnuchin. “Japan won’t discuss exchange-rate matters in the context of trade talks.”

What’s next?

Officials from both countries have indicated they want to wrap up negotiations quickly. Very quickly.

Though the US has yet to finalize a trade deal with China, Trump made it clear that he wants to have a new agreement with Japan as soon as possible.

How soon? A month.

The President suggested a deal could be signed during his state visit to Japan in late May.

“I think it can go fairly quickly. Maybe by the time I’m over there,” said Trump, who is also expected to attend the G20 leaders’ summit in the Japanese city of Osaka in late June.

According to Reuters, a Japanese official said that after meeting at the White House, the two leaders “agreed to accelerate the discussions in order to achieve an early result on Japan-US trade talks.”

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