An Urban's Rural View

The Big U.S. Trade Partner That's Not in the Headlines

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
Connect with Urban:

Winter's supposedly over, but flurries of trade news as thick as early-spring snow have been falling in Washington, D.C. Among the headlines have been stories about stiff tariffs on steel and aluminum; stiffer tariffs to punish China for its theft and extortion of American intellectual property; and new threats from President Donald Trump to pull out of NAFTA.

Many of America's trade partners, including Mexico, Canada and the EU, have raised their umbrellas against these storms and won temporary exemptions from the steel tariffs. Another country, South Korea, negotiated tweaks in its free-trade agreement with the U.S. China, for its part, is retaliating against the steel and aluminum tariffs with tariffs of its own, including a 25% levy on American pork, while holding talks with the U.S. on the other issues.

One big country has stayed out of the headlines. Japan is America's fourth largest trade partner overall and the fourth largest foreign buyer of U.S. ag exports -- $11.9 billion worth in 2017 (https://bit.ly/…). Japan is America's strongest ally in the Pacific. Its Prime Minister, Shinzo Abe, has gone out of his way to court President Trump (http://tiny.cc/…).

Yet so far Japan, unlike other U.S. allies, hasn't gotten one of the temporary exemptions to the steel and aluminum tariffs. Anyone trying to make sense of the trade news, farmers and ranchers very much included, might well wonder why. What's going on between the U.S. and Japan?

Before President Trump took office, the U.S. and Japan had agreed to trade terms that would have given American ag exports a big boost -- the 12-nation Trans-Pacific Partnership. Ranchers would have been especially big beneficiaries. Japan's tariff on imported beef would have fallen to 27.2% from 38.5% in year one and would eventually have dropped to 9%.

Trump thought it was "a horrible deal." One of his first acts on his first day in office was to pull the U.S. out of TPP. This was a gift to Australian beef. Australia is both a TPP member and has a separate free-trade agreement with Japan. Australian beef not only gets the lower rate but is not subject to safeguard tariff increases Japan reserved to protect its domestic beef producers against import surges.

As a result, there was a recent period when Australian beef was entering Japan at a 27.2% rate while U.S. beef was coming in at the surge rate of 50%. Jeffrey Schott of the Peterson Institute for International Economics was right, then, to call the TPP withdrawal "Shooting Ourselves in the Hoof" (http://tiny.cc/…).

Trump said he could get a better deal from Japan by negotiating bilaterally -- that is, with Japan directly minus the other 10 countries. Fourteen months later, those negotiations have yet to begin.

The Japanese don't want a bilateral agreement with the U.S. They want the U.S. back in TPP, which has gone forward as an 11-nation deal without the U.S. and been renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Pressed to enter bilateral talks, the Japanese have played hard to get.

In this context, what's going on between the U.S. and Japan is clear. The Japanese are trying to reestablish a multilateral deal with the U.S. They signed one with the European Union, which had the added benefit for them of putting pressure on Trump to do the same.

Trump, in turn, is trying to pressure Japan to negotiate a bilateral. That was the message the administration was sending when it denied Japan a temporary exemption to the steel tariffs while exempting other trade partners.

What we have here, then, are attempts by each side to gain leverage with the other. It's a fascinating exchange to watch because it's being conducted through actions rather than words. Neither side is trumpeting its position in press releases or communiques, but the signals being sent are unmistakeable.

The question is whether either side is making headway. The Japanese might have thought they were a couple months ago when Trump said he "would do TPP if we made a better deal than we had" (http://tiny.cc/…). Nothing has come of that tantalizing comment, however, and it's unclear anything ever will.

Nor is there any sign that the Japanese will now be willing to negotiate bilaterally. Even if they were, there's little reason to believe the result would amount to much. It could end up like the hasty agreement the South Koreans reached with the U.S., which focused heavily on a couple of industrial sectors. That deal doesn't change the terms of trade for other sectors, including agriculture.

One trade expert I've talked to thinks the Japanese made more concessions than they wanted to in the TPP deal -- and only did so because they got so many benefits back from such a broad array of countries. If this expert is right, it will be hard to avoid the conclusion Trump miscalculated. Contrary to his reckoning, it may be impossible for him to negotiate better terms with Japan bilaterally than America got in the TPP.

That would leave the president with an unappetizing choice: swallow hard and accept the "horrible" multilateral deal or leave a lot of American producers, industrial and agricultural, out in the cold with no deal at all, or a very tepid deal.

Then again, the president may just declare victory whatever happens. As the Economist described his negotiating style in a different context, "Like any businessman, he is accustomed to asking for a lot and settling for less. His genius lies in having the gumption to claim he got everything he asked for nonetheless ..." (http://tiny.cc/…)

Urban Lehner can be reached at urbanize@gmail.com

(ES/)

Comments

To comment, please Log In or Join our Community .