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Abe-Trump deal brings welcome respite in global trade conflicts

But preliminary US-Japan accord may pave the way to common front against China

| Japan
A handshake -- U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe reach a preliminary bilateral trade deal.   © Reuters

The announcement that the U.S. and Japan would begin bilateral negotiations on trade suggests that Japan has given ground in its reluctance to engage with the Trump administration.

On closer inspection, however, the Sept. 26 accord reveals a political compromise that avoids harming the U.S.-Japan relationship while giving both Prime Minister Shinzo Abe and President Donald Trump room to claim success in managing the alliance.

Perhaps it was Abe's deft handling of his personal relationship with the president that made the difference. Or perhaps Trump's growing awareness of the costs of undermining U.S. alliances. Either way, this deal avoids a potentially-harmful collision between the world's biggest economy and one of its largest sources of foreign direct investment.

Moreover, China, always the president's main trade policy target, can now take center stage in his administration's agenda in Asia.

After advocating for a regional, Pacific-wide, trade framework, Abe finally gave Trump what he wanted -- a bilateral deal. Ever since Trump withdrew from the multinational Trans-Pacific Partnership, Abe has steadfastly argued that Japan preferred a regional multilateral framework that presents a model for other Asian economies seeking to liberalize their economies.

The bilateral deal, reached during Abe's visit to the U.S., comes after months of dissonance between the two leaders on trade. During his last visit to the United States in June, The Japanese prime minister and Trump revealed their differences when Abe argued for a shared approach to a "free, open and reciprocal" Indo-Pacific while Trump restated his preference for a bilateral accord.

Bilateral trade talks are clearly designed to leverage U.S. advantage with allies. Trump has criticized allies for taking advantage of the U.S. In Europe, he picked on Germany and pointed to the European Union trade surplus and low NATO defense spending in Europe as evidence that the U.S. was being taken to the cleaners. Similarly, but a bit more quietly, Trump argued that the South Korea-U. S. trade agreement also needed a redo and opened talks on Seoul's contributions to the costs of U.S. forces in South Korea even as he confronted North Korea militarily.

Japan has avoided the intensity of Trump's criticism for some time, largely due to Abe's efforts to develop a close working relationship with the often-irascible U.S. leader. The Abe Cabinet initially sought to approach its economic differences with the new president through a high level economic dialogue between Vice President Mike Pence and Deputy Prime Minister Taro Aso.

But this broad Aso-Pence dialogue seemed to frustrate the Trump administration, as it did not seem to address the president's primary concern with the trade deficit. As with the EU, the U.S. president played the defense card. While in Tokyo in November 2017, he explicitly linked U.S. security protection with the trade deficit by arguing for Tokyo to purchase costly new weapons from the US to bring down the deficit and create American jobs.

The threat of tariffs by Washington, however, created an impetus for Abe to find better ways to engage Trump on trade. The imposition of levies under Section 232 of the Trade Expansion Law on steel and aluminum imports put pressure on Tokyo. Japanese steel exports to the U.S. were affected, but the costs were largely falling on U.S. consumers of the niche steel products made by Japanese producers. Abe spoke privately to Trump, but Japan, unlike Europe and other steel producers, did not threaten to retaliate against U.S. tariffs. The Department of Commerce's consideration of applying Section 232 to autos, Japan's biggest top U.S.-bound export, however, raised the possibility of real costs for Japanese industry and raised the political stakes for Abe.

Domestic politics also influence the timing. Abe's Liberal Democratic Party just elected him to serve another three years, giving him more latitude to work through this trade negotiation with Trump. A report expected by the Commerce Department on autos in August was postponed, paving the way for the U.S. and Japan to develop what Japanese trade negotiator Toshimitsu Motegi described as a "common framework" announced during the Trump-Abe meeting at the UN General Assembly gathering.

The president has a different set of political pressures. Trump's first big electoral test, since winning the White House in 2016, are the midterm elections in November. Although he is not on the ballot, many of his ideas are. Already, the president can argue that he has simultaneously improved trade prospects with South Korea by renegotiating that trade agreement, and by bringing the EU to the table to renegotiate cross-Atlantic trade. Trump can also claim that his tough approach in renegotiating NAFTA, especially with Canada, and his trade war with China bring the promise of a much better deals for the U.S. Senior Republicans welcomed his the U.S.-Japan accord.

Japan's acquiescence on bilateral talks has bought it relief from an impending showdown on auto tariffs. Abe's insistence that there would be no further compromise on market access for U.S. agriculture beyond what has already been negotiated in the TPP will reassure farmers in Japan. Similarly, the prospect of further investment in the U.S. market by Japanese automakers will be welcomed by many in the U.S. Interestingly, Abe insists that this is not a typical free trade agreement, but rather a Trade Agreement on Goods and thus limited in scope.

This puts off some potentially sensitive discussion on trade in services, a growing share of U.S. exports to Japan. Abe is trying to minimize the risk of political tangles -- at least in the initial talks.

Also important is the alignment between Trump and Abe on how to think about China. The joint statement included references to many of the issues that prompted U.S.-Japan cooperation in TPP, including intellectual property theft, state-owned enterprises and other unfair trade practices. With a preliminary trade accord, Washington and Tokyo can now concentrate on managing strategic competition with Beijing.

The accord demonstrates that even with Trump, compromise and mutual accommodation is possible. While Trump got the bilateral deal he always demanded Abe got relief from the threat of auto tariffs.

Negotiators still have to produce a detailed agreement that will be palatable at home in both countries.

But a serious clash between Tokyo and Washington has been averted, for now. That is good in itself, economically and politically. Moreover, the U.S. and Japan have much to gain from looking beyond their differences and focusing on the challenge of responding to China's increasing efforts to win strategic advantage across the Indo-Pacific.

Sheila A. Smith is senior fellow for Japan studies at the Council on Foreign Relations

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