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Demanding trade pact, US dials up pressure on Japan

Washington wants greater access for farm products, autos

U.S. Vice President Mike Pence, second from right, expressed his country's interest in a free trade agreement with Japan.   © Kyodo

WASHINGTON -- The U.S. has begun pushing outright for free trade talks with Japan, leaving officials in Tokyo scrambling to prepare for what could be an uphill battle with Washington over agriculture and automobiles.

Vice President Mike Pence informed Deputy Prime Minister Taro Aso on Monday that the U.S. has a strong interest in launching free trade negotiations, becoming the first American official to confirm in high-level talks what Japan has feared for months. The pair met here for the second round of an ongoing economic dialogue.

"The key battle has arrived, it seems," said an official at a Japanese agency dealing with the economy.

Japan had offered to help the U.S. export shale gas to Asia and reduce the trade imbalance between the two countries. But that failed to placate Washington, which instead called for free-trade talks.

Japanese Deputy Prime Minister Taro Aso, left, visited Washington for another round of economic dialogue Monday.   © Kyodo

"The administration is very interested in expanding exports of certain choice products that would make a splash in business circles," said an official from Japan's Ministry of Economy, Trade and Industry.

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Though cooperation in fields such as energy and rail transport is important, Washington's chief dissatisfaction involves the country's trade deficit with Japan, an American trade source said. This deficit totaled roughly $70 billion in 2016, surpassed only by the gap between the U.S. and China. The Trump administration sees this imbalance as a loss for the U.S., one that the president intends to rectify.

Increasing agricultural exports to Japan is a top priority on this front. "We are eager to enter into bilateral trade negotiations with Japan" to lower the barriers faced by the farming and livestock industries, U.S. Agriculture Secretary Sonny Perdue said in early October.

Under most circumstances, Japan levies a 38.5% import tariff on American beef. But Australia will see the tax on its frozen beef products fall to 19.5% over time thanks to an economic partnership agreement with Japan. The Trans-Pacific Partnership trade pact would have leveled the playing field, bringing the tariff to 9% for fresh and frozen beef from all participating countries. But Trump pulled the U.S. from that agreement in January before it could take effect, leaving American producers concerned about losing out in a market that serves as a steppingstone to the rest of Asia.

Washington also looks to expand exports of fossil fuels such as natural gas and coal. The car industry, meanwhile, wants Japan to take further steps to promote American auto exports, despite Tokyo having already eliminated import tariffs on those vehicles. Detroit also wishes to retain American tariffs on Japanese autos, which total 2.5% for passenger cars and 25% for trucks and sport utility vehicles.

Japan is less eager to come to the table. At present, Tokyo is focused on reconstituting the TPP without the U.S., targeting a broad agreement among the remaining 11 nations when heads of state meet in November. Washington is likely to try to extract better conditions for farm products than those offered under the multilateral pact. The Trump administration also wants to include in the trade pact a clause restricting Japan's ability to guide its currency weaker -- something the Ministry of Finance will not take lying down.

Coming up

Of course, launching trade talks will not be a simple process. The Office of the U.S. Trade Representative has its hands full renegotiating deals including the North American Free Trade Agreement with Canada and Mexico and a free trade pact with South Korea, and may lack the capacity to add talks with Japan to its agenda. Clearing bureaucratic hurdles on both sides also could take time.

But for all Tokyo knows, this may not matter to Trump, who travels to Japan in November for top-level talks. With Pence having broached the subject of a trade agreement, Japanese government sources are alarmed by the prospect of the president bringing up such a deal in a summit next month.

"We're not going to be bossed around," an official at the economy ministry said, adding that Japan "will make demands of our own." But Tokyo can push only so hard, given the need for U.S. protection amid the ever-changing Asian security environment.

Trump's protectionist stance on trade won him support among American workers last November, and he seems unlikely to soften that position ahead of congressional elections in 2018 or the next presidential race in 2020. If talks on NAFTA or with China or South Korea fail to deliver the political win the administration hopes for, Japan could become the next target.

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