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Trade War

Japan looks to Canada for US mood on trade talks

Any quick NAFTA deal lets Washington toughen stance with Tokyo

Canadian tariffs that shield the nation's dairy industry are a large sticking point in the NAFTA talks with the U.S.   © Reuters

TOKYO --  Japan is keeping a close eye on Canada's trade stance, in hopes that ongoing negotiations over the North American Free Trade Agreement will temper Washington's attitude at its trade talks with Tokyo set for next week.

The U.S. and Japan are preparing to resume negotiations for "free, fair and reciprocal" trade on Sept. 21, just a few days before an expected meeting between Prime Minister Shinzo Abe and President Donald Trump on the sidelines of the U.N. General Assembly gathering in New York.

Tokyo also looks to schedule another round of economic dialogue between Vice President Mike Pence and Taro Aso, Japan's finance minister and deputy prime minister.

At the first FFR talks early last month, Japanese negotiators led by fiscal policy Minister Toshimitsu Motegi refused to accept higher U.S. auto tariffs. Tokyo also insisted it could not cut duties on American farm products any further than it did for members of the Trans-Pacific Partnership. Trump withdrew the U.S. from that multilateral pact at the beginning of his presidency.

Japan's aggressive stance was fueled partly by expectations that Washington was more concerned with renegotiating NAFTA, and would not ramp up pressure on Tokyo at this time.

The U.S. and Mexico have since reached a broad bilateral agreement toward revising the North American deal. The new terms include an increase to the proportion of components made in North America a vehicle must have to avoid tariffs under the trade pact, as well as a 25% American tariff on Mexican-produced passenger vehicles that kick in once imports hit a certain volume.

That deal lets Washington shift the focus of NAFTA talks to Ottawa, and the implications stretch to Tokyo.

U.S. and Canadian cabinet officials held their latest meeting Tuesday in Washington. But Canadian Foreign Affairs Minister Chrystia Freeland left the same day to attend a retreat back home by her governing caucus, where she will brief Prime Minister Justin Trudeau on the talks. It is unclear when the meetings will resume.

The U.S. and Canada have until the end of September before Trump needs to release the text of a new deal. Neither wants the talks to break down: Trump seeks a political victory before November's midterm elections, and Trudeau wishes to retain the trade benefits afforded by the existing NAFTA deal.

Reaching an agreement with Canada prior to the talks with Japan would let U.S. Trade Representative Robert Lighthizer press Tokyo harder on concessions. Japan would have to fend off louder calls for auto tariffs, and safeguards on import volumes might be brought to the table as well.

But even if Washington hits snags on NAFTA renegotiation, Tokyo may still have little breathing room. 

"If the U.S. and Canada fail to come to terms, Mr. Trump will likely demand tough concessions from Japan so he has something to show" to voters, said Hajime Yoshimoto, senior economist at Nomura Securities.

Regardless of how things with Canada play out, the U.S. likely will renew its push for lower duties on American farm products at the next FFR talks, looking to slash its trade deficit with Japan. Tokyo intends to avoid a tense standoff between Abe and Trump, largely because U.S. involvement remains key in resolving the issue of Japanese citizens abducted by North Korea.

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