US and Japan talk trade at critical juncture

Japanese Prime Minister Shinzo Abe and US President Donald Trump have the opportunity to meet face to face at least three times over the next three months. Abe goes to Washington this weekend to discuss trade issues and the coming G20 meeting in Osaka. Trump will visit Japan in May to meet the new emperor and is expected to come again in June to attend the G20 summit.

Analysts are speculating how this intense schedule of meetings might affect talks for a new Japan-US deal.

US Trade Representative Robert Lighthizer and Japan’s Economic Revitalization Minister Toshimitsu Motegi kicked off negotiations in Washington last week. The first round of talks took place over six hours, much of that between Lighthizer and Motegi alone, and they’re meeting again later this week to continue where they left off.

Japan's Toshimitsu Motegi with US Trade Representative Robert Lighthizer in Washington on April 16th.

The US may have reasons for trying to speed up the talks. American farmers are now at a disadvantage with other exporters since the US withdrew from the Trans-Pacific Partnership Agreement. Australia and New Zealand are getting better access to the Japanese market with the lower tariffs. Leaving US farmers unhappy could hinder Trump’s reelection bid.

Motegi confirmed with Lighthizer in the first round of talks that any tariff reductions by Japan on American farm imports would be governed by levels already set by the TPP. The US Trade Rep may have wanted deeper cuts to those tariffs, but US negotiators now seem to be giving priority to reaching an agreement faster, ahead of the next presidential election.

Autos are another important sector for the Trump administration and, in fact, may well be the main battlefield. Auto trade accounts for up to around 70 percent of the US trade deficit with Japan. Japan exports around 1.7 million vehicles to the US and American trade officials are believed to be considering numerical curbs on that, similar to the terms agreed in the new NAFTA, the United States-Mexico-Canada Agreement. However, such curbs would not accord with current World Trade Organization rules.

Digital trade is an area that could be a mutual win for both countries. Motegi and Lighthizer agreed to put it on the agenda at their Washington meeting. The Trump administration is calling for free international data flow in a digitalized economy, but China is opposed. Abe has called on G20 member countries attending the Osaka summit to agree to talk about establishing new rules that ensure “Data Free Flow with Trust.” Experts say that getting this on the agenda could help build a united front against the countries opposed to the free flow of data.

The time frame for bilateral talks is politically sensitive for the leaders of both countries. Japan has a national election coming this summer, and President Trump needs achievements he can boast about to voters in next year's presidential election. However, progress by his administration seems to be stalled in resolving the trade row with China. Escalating tensions with the European Union is another problem occupying the time of US trade officials, and getting congressional approval for the new free trade agreement with Canada and Mexico could be an uphill battle.

Analysts in Japan are watching to see how all of these factors could steer Japan-US trade talks.