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US-Japan trade deal to slash tariff on American agricultural products

Bloomberg France | Updated on August 26, 2019 Published on August 26, 2019

(Left) Japanese Prime Minister, Shinzo Abe, with US President, Donald Trump at the G7 Summit in France. Photo: Reuters   -  Reuters

Delays decision on additional levies on Japanese auto exports to the US

The United States (US) and Japan agreed in principle on a trade deal that would slash Tokyo’s tariffs on American beef, pork and other agricultural products, while delaying for now the threat of additional levies on Japanese auto exports to the US.

US President Donald Trump and Japanese Prime Minister Shinzo Abe had made the announcement on Sunday. This was on the sidelines of the Group of Seven (G7) summit in Biarritz, France, following a bilateral meeting earlier in the day. In announcing the deal, Trump also said Japan would purchase large quantities of US wheat and corn.

“If you say win-win, its a capital letter Win for the US and a small-letter win for Japan. The deal would put the US back in line with its rivals for Japan’s agricultural market in terms of tariffs, a position Washington would already enjoy had Trump not rejected an earlier multilateral trade deal,” said Ichiro Fujisaki, a former Japanese ambassador to the US.

“In Japan’s case, it is a small win plus non-negative assurance that no unilateral measures will be taken by the US, like on limiting car importations or some relations with security issues. While Japan kept the threat of tariffs at bay, it did not get a removal of existing auto tariffs in exchange for its farm concessions, nor a public promise not to impose higher car levies,” Fujisaki said.

It was Trump’s threat of punitive tariffs on Japanese auto exports that spooked Abe into agreeing last September to start bilateral trade talks with the US. Trump has, in turn, come under pressure from US farmers, reeling from the trade war with China. China has been hobbled by the tariff disadvantage in the Japanese market compared with competitors from signatories of the Trans-Pacific Partnership regional trade deal he rejected.

“We have agreed in principle. We have agreed to every point. He also referred to a massive purchase of wheat and a very, very large order of corn that he said would happen quickly,” Trump said adding that there would be no change to US tariffs on Japanese cars.

‘Positive impact on Japanese and American economies’

The countries have reached a consensus on core elements and were aiming to sign a deal during United Nations (UN) meetings next month, Abe said. The Japanese Prime Minister said that agricultural product purchases were a possibility, adding that crop pests had resulted in the need for emergency support to enable the private sector to buy American corn.

“If we are to see the entry into force of this trade agreement, I’m quite sure that there will be the immense positive impact on both the Japanese as well as American economies,” Abe said.

While the proposed deal may provide Trump with a fillip as he heads into his re-election campaign facing rising tensions with China, the initial reaction in Japan was mixed. Some officials in Tokyo have said the country should not give up its leverage over US farmers without substantial concessions, and Japanese trade agreements generally require parliament approval.

“As I expected, Japan gave ground on agriculture and did not win anything on autos. This kind of obseqious diplomacy makes Abe happy, and hurts the people,” former Japanese Prime Minister Yukio Hatoyama, an opponent of Abe’s long-ruling Liberal Democratic Party, said on Twitter.

Chief Cabinet Secretary Yoshihide Suga told reporters it was not true that Japan had been steamrollered by the US and added that he did not think punitive so-called Section 232 tariffs would be applied to Japan.

“Whether or not the threat has been removed is key to evaluating the deal. Without knowing that, its too early to say whether this will be a good agreement for Japan,” according to Junichi Sugawara, a senior research officer for Mizuho Research Institute Ltd.

US Trade Representative Robert Lighthizer said the proposed deal would open markets to $7 billion of American products including ethanol, as well as beef, pork, dairy products and wine. He said tariffs on some Japanese industrial products would be reduced, but that these wouldnt include cars. The proposed agreement also includes a clause on e-commerce, he said.

Level Field

The farming provisions of the deal won some early praise in the US, with the National Pork Producers Council and Senate Agriculture Committee Chairman Pat Roberts, of Kansas, among those welcoming a deal they said would put American agriculture on a level playing field with the 11 TPP-member nations.

Agriculture Secretary Sonny Perdue said removing the trade barriers would allow greater sales of US farm products in Japan. Some in Japan said that was an acceptable price to pay.

If were being realistic, the US had been waving the 25% auto tariff card, said Atsushi Takeda, chief economist at Itochu Research Institute Inc. Japan has managed to avoid that, there are probably no quotas, and for now there is no comment on currencies. I think theyve managed to end up with a passable result.

Published on August 26, 2019
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