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The Nikkei View

Managed trade is bad for both the US and Japan

The two sides should forge a deal based on TPP standards

U.S. President Donald Trump, left, and Japanese Prime Minister Shinzo Abe field questions from reporters at a joint press conference in Tokyo on May 27. (Photo by Masayuki Terazawa)

The ongoing Japan-U.S. trade negotiations were the focus of U.S. President Donald Trump’s recent state visit to Japan. When he sat down with Japanese Prime Minister Shinzo Abe in Tokyo on May 27, the two leaders agreed to accelerate the talks with the aim of achieving concrete results soon.   

The biggest concern is that Tokyo will cave in to pressure from Washington to take measures that lead to the “management” of exports and exchange rates. Both sides should recognize that rushing to embrace managed trade would benefit neither. Instead, they should be seeking common ground for a constructive agreement.

In his meeting with Abe, Trump -- who has made cutting U.S. trade deficits his mission -- indicated a desire to conclude the trade negotiations as early as August, which implies that the U.S. will wait until after Japan’s upper house election in the summer. Trump later said in the joint press conference that in moving forward with tariff discussion on farm products and automobiles, he did not want the U.S. to be bound by the standards of trade liberalization set under the Trans-Pacific Partnership deal, from which America has already withdrawn.

Japan managed to implement the so-called TPP-11 -- an 11-nation Pacific Rim free trade deal that does not include the U.S. -- as well as an economic partnership agreement with the European Union. As a result, American farmers and companies have been put at a competitive disadvantage against foreign rivals. Recognizing this, Trump is trying to gain tangible results from talks with large trade partners as quickly as possible. The U.S. leader, despite his haste, has pragmatically opted to wait until after Japan's upper house election -- a sensitive political situation for the Abe government -- before settling negotiations with Tokyo.

But there are lines the Japanese government can never cross regardless of how much pressure the Trump administration piles on. Tokyo is in no position, for example, to liberalize imports of American agricultural products beyond the standards set in the revived TPP.

The TPP can be seen as a model for high-level free trade and investment agreements. Aiming for a deal that is in line with the TPP standards would be the most efficient route for trade negotiators and serve the interests of both Japan and the U.S.

What would be seriously problematic is if Washington attempted to place quantitative restraints on imports or add clauses in trade deals that block partners from artificially lowering their currencies. The Trump administration has postponed its decision on imposing steep tariffs on auto imports from other major automaking countries until mid-November. There are concerns, however, that Washington will use the tariff threat to handcuff its partners in terms of trade volumes and exchange rate movements.

Trump says the growing volume of auto imports to the U.S. is a threat to national security, and he is using that assertion as grounds to pressure Japan and the EU to speed up bilateral trade talks. This behavior can only be described as reckless and dangerous.

Washington should retract all steep customs duties, including those on steel and aluminum, and forge ahead with the negotiations in line with the principles of free trade. Japan, for its part, needs to put some muscle into eliminating managed trade from the world.

The U.S. and Japan, the world’s largest and third-largest economies, have a duty to stem the “diminishing equilibrium” mindset in trade and investment. Moreover, to prevent managed trade from becoming a global phenomenon, they must avoid setting bad precedents, such as placing quantitative restrictions on exports and inserting currency provisions in trade agreements.

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