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Trade war

US-Japan trade talks face delay as Trump focuses on China

Much of USTR staff not at work as government shutdown continues

U.S. Trade Representative Robert Lighthizer speaks at the White House in October as President Donald Trump and Treasury Secretary Steven Mnuchin look on. Lighthizer is expected to focus on trade talks with China for now.   © Reuters

TOKYO -- Trade negotiations between the U.S. and Japan, initially expected to take place this month, are likely to be delayed until February or later as Washington gives priority to trade talks with Beijing and has yet to end the partial government shutdown.

The U.S. government is required by law to send notice to Congress at least 30 days in advance of trade negotiations and list their objectives. The Office of the U.S. Trade Representative sent that notice on Dec. 21, clearing the way for bilateral talks with Tokyo to begin as early as late January.

U.S. Trade Representative Robert Lighthizer, who is in charge of trade talks with Japan, also leads negotiations with China, where both sides are seeking a resolution before March 1. President Donald Trump seeks to correct what he calls unfair trade practices by Beijing, and Lighthizer is expected to focus on those discussions for the time being.

If the U.S. and China agree to extend the deadline beyond March 1, the start of U.S.-Japan trade negotiations could be put off until April or later.

The government shutdown in the U.S. is also affecting the talks. Much of the staff in the Office of the U.S. Trade Representative is not working. The state of affairs has deteriorated to the point that "you can't reach them by phone," said an official for the Japanese side.

Another condition that must be fulfilled before the bilateral talks is for the U.S. International Trade Commission to issue a report on the economic impact of the trade deal. But the shutdown has stalled work in that agency too, which also would push back the negotiations.

Tokyo views June as a critical juncture. That is when Trump is due to meet with Prime Minister Shinzo Abe at the Group of 20 summit in Osaka. Until that point, Lighthizer is expected to meet a number of times with his Japanese counterpart, Economic and Fiscal Policy Minister Toshimitsu Motegi. The talks prior to the Trump-Abe summit would take about three months.

In late September, Japan agreed to enter into negotiations with the U.S. under the "trade agreement on goods" framework, known as TAG. Tokyo, which favors multilateral pacts over bilateral agreements with a stronger partner, reached that compromise with the U.S. with the expectation that TAG would largely exclude services.

Some Japanese officials hope for an agreement with the U.S. in a matter of months. The 11-member Trans-Pacific Partnership trade pact went into effect last month, and Japan's economic partnership agreement with the European Union is due to launch Feb. 1. American farmers, who would be placed at a disadvantage in exports by these accords, can be expected to lobby the Oval Office to seek a quick deal with Tokyo.

Under that pressure, the U.S. would be more willing to accept Japan's demands that cuts in farm tariffs be limited to levels agreed in the TPP.

On the other hand, negotiations could last far longer. "The U.S. will come with demands that Japan will find hard to swallow," predicted Takahide Kiuchi, executive economist at the Nomura Research Institute and a former member of the Bank of Japan's policy board. "A resolution will take about one year." 

In that scenario, Trump might demand a volume cap on Japanese automobile imports, or declare that one cause of the U.S. trade deficit is Tokyo guiding the yen weaker. If the currency market reacts to such a Trump statement by buying yen, Japan could be forced into unwelcome concessions in the auto and agricultural sectors.

The American trade negotiation with China is also a variable that could tip the outcome of talks with Japan. If Washington and Beijing agree to some sort of trade promotion provision, Japan could become the target of Trump's crusade to cut the trade deficit.

September's joint statement made an exception for services that allows discussions in certain areas that "can produce early achievements." Lighthizer and Motegi agreed via telephone last month to stick to the stipulations in the joint statement.

But the picture can change depending on Trump's intentions. The U.S. could seek major concessions in medical pricing and financial services.

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