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International relations

Japan escapes auto tariffs, but Trump is not done with trade deal

US president in search of more wins amid election pressure and China tension

NEW YORK -- During a signing ceremony for the U.S.-Japan trade agreement on Wednesday, President Donald Trump invited in members of farming organizations to the room at the InterContinental New York Barclay to witness his accomplishment. 

"This is a huge victory for America’s farmers, ranchers, and growers," he said. "And that’s very important to me."

The U.S. agricultural sector has been reeling under the trade war with China, especially after Beijing stopped purchases of farm goods in August. Trump was hungry for a win. And Japanese Prime Minister Shinzo Abe knew it.

A looming presidential election and the trade war with China propelled Trump to reach a partial trade agreement within six short months since negotiations kicked into full gear.

Key to the deal was Japan agreeing to gradually lower the levy on U.S. beef to 9% from the current 38.5%, matching the goal rate under the Trans-Pacific Partnership trade that Washington left.

Just a month ago, the two countries were at loggerheads, with the U.S. pressing for greater market liberalization than Japan agreed to under the TPP.

Toshimitsu Motegi, then Japan's lead negotiator and now foreign minister, held his ground. "You're the ones who want a quick agreement. I'm only offering things I can deliver on," Motegi told U.S. Trade Representative Robert Lighthizer.

The situation shifted on the last day of talks on Aug. 23, when China announced additional tariffs on $75 billion of U.S. goods. After consulting with Trump, Lighthizer withdrew demands for a low-tariff quota for dairy and other products that exceeds the terms agreed on under the TPP. The two sides quickly worked out a broad agreement.

Abe and Trump met on the sidelines of the Group of Seven summit in France two days later. At a chat that followed, Trump said he was pleased with the results and wanted to sign the deal.

"Shinzo, do you mind if I talk about the corn purchase?" Trump asked Abe. The American leader was eager to announce the large scale purchase to reporters. 

The Japanese leader had agreed to import U.S. corn separately from the trade deal. Many American corn farmers also grow soybeans, which have been hit hard by Chinese tariffs. Corn shipments to Japan could help alleviate their plight.

In April 2018, Abe proposed a new framework for trade negotiations, during a summit with Trump. He originally hoped to use it to convince the U.S. to rejoin the TPP, but shifted his focus to a bilateral trade deal to preserve his rapport with Trump.

They agreed that September to formally start negotiations, and cabinet-level talks began this April. Japan wanted at the very least to prevent high tariffs and a quota on automobiles, and avoid liberalizing farm goods further than it did under TPP.

Japan's automakers would suffer greatly from an additional U.S. tariff, which Trump had threatened in May. A 25% levy could cost Toyota Motor and other big Japanese players up to 500 billion yen ($4.64 billion), according to private-sector estimates. The Japanese government has been working with automakers behind the scenes to protect their interests.

The deal signed Wednesday gave Trump the agricultural win he sought, while holding off the additional auto tariffs that the Japanese side dreaded. Abe described the agreement as a "win-win." But the accord put together in haste leaves many differences unresolved, with Trump already signaling for additional talks.

The conversation on trade is far from over. "In the fairly near future we're going to be having a lot more very comprehensive deals signed with Japan," Trump said on Wednesday. Lighthizer said trade negotiations could enter a second round as early as the spring.

The U.S. has taken aim at Japan's service sector and non-tariff barriers, pushing for drug price reforms and the opening up of Japan's financial and telecommunications industries.

"At this point, it is certainly not our intention, the president's intention, to do anything on autos, on 232s, on Japan," Lighthizer said, referring to Section 232 of the Trade Expansion Act of 1962, which gives the Commerce Department national security authority. 

The words "at this point" made clear that the issue could be put back on the table in the future.

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