Paying the Cost for U.S. Withdrawal from TPP

With bows exchanged to Japan’s newly enthroned emperor and a huge trophy awarded to the season’s sumo champion, President Trump’s latest visit to Tokyo was at first blush a protocol triumph. The fact that the president was willing to commit four days simply to travel to Japan when he will be going there again in a month’s time for the G20 meeting also sent a powerful signal to across the Asia-Pacific region that U.S-Japan relations remain strong and critical for both countries. Yet in spite of the plethora of diplomatic gestures signaling solid bilateral ties, the takeaway after the Trump trip remains that of persisting uncertainties. What’s more, the possibility of a win-win on the trade front seems increasingly difficult, raising frustration on the Japanese side as Tokyo continues to seek economic stability, especially when Japan is increasingly pressed to pay the cost for U.S. withdrawal from the TPP.  

Meanwhile, Japan effectively lifted all restrictions on U.S. beef imports in spite of steel and aluminum tariffs still being imposed on it for the past year under section 232. 

Granted, no breakthrough was expected on trade relations even before Trump set off for Tokyo in late May, and no deal was anticipated to emerge after the summit meeting between the U.S. president and the Japanese prime minister. Yet days before the president departed Washington, USTR announced that it would simply postpone the decision on whether or not to invoke nation security concerns and impose section 232 tariffs on both Japanese and European car imports. Meanwhile, Japan effectively lifted all restrictions on U.S. beef imports in spite of steel and aluminum tariffs still being imposed on it for the past year under section 232. Moreover, during his visit, Trump said that Japan would buy 105 F35s made in the United States which would give the country the biggest fleet of the warplanes among U.S. allies, to be sure, but also do a great deal to reduce Japan’s trade deficit with the United States. 

How Washington looks to move forward on imposing tariffs on allies including Japan still remains uncertain. What is clear, however, is that the United States has already begun to suffer from its decision to pull out of the TPP in January 2017. In the Japanese market, U.S. goods are now losing out to cheaper imports from Australia, Canada, and other CPTPP member countries. Furthermore, Japan concluding a free trade agreement with the EU last year has also led European goods including agricultural products to become cheaper for Japanese consumers, giving them an advantage over their U.S. counterparts. This comes at a time when U.S. farmers are already being hampered by the ongoing trade tensions with China and the retaliatory tariffs imposed by Beijing. While the White House unveiled a $16 billion bailout package for U.S. farmers to offset their losses in reduced exports, there are growing expectations of a long, drawn-out trade war with China. That incentivizes the Trump administration to reach a bilateral trade deal with Japan quickly, which can explain why the president declared at his joint press briefing with Prime Minister Abe that a bilateral trade deal would be concluded by August, even though Japan’s own strategy would be to delay any conclusion as long as possible. 

For now, though, wariness that a trade deal with the United States post-election would hurt Japanese automakers as well as the agricultural sector persists.

As for Abe, he will need to grapple with the optics of friendship with Trump on the one hand, and with continued tensions on trade, not to mention uncertainties about U.S. strategy for North Korea and beyond, on the other. With the Upper House elections looming in July, and the possibility of a Lower House election being called as well, the Japanese premier will be pressed to come across as a leader capable of ensuring that Japan’s own national interests are protected and Japanese businesses are able to remain competitive in international markets. For now, though, wariness that a trade deal with the United States post-election would hurt Japanese automakers as well as the agricultural sector persists. Together with the prospect of the consumption tax being raised in October, Japan’s economic climate will likely face continued headwinds, with uncertainties of U.S. trade policy toward Japan as well as China and other countries being the source of one of the biggest risks.

Image: The White House on Flickr.

Follow Shihoko Goto, deputy director for geoeconomics and senior associate for Northeast Asia, on Twitter @GotoEastAsia.

The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center. Copyright 2019, Asia Program. All rights reserved.