Stockholm (Ekonamik) – As U.S. President Donald Trump visits Japan for a four-day summit starting Saturday for a mixture of talks and symbolic tribute to Japan’s new Emperor, Naruhito, the visit will be of critical importance in both determining the strength of Mr Trump’s hand in his overall trade policies, and to Japanese Prime Minister Shinzo Abe’s political fortunes domestically.
Mr Trump and Mr Abe are slated to discuss U.S.-Japan trade focused on Japan’s $68 billion trade surplus with the United States – a substantial fraction of which stems from Japanese auto exports, alongside North Korea’s nuclear and missile programs, and China’s economic and military rise. U.S. Trade Representative Robert Lighthizer will meet with Japan’s minister for economic and fiscal policy Toshimitsu Motegi prior to the summit Monday for talks described as likely to be “difficult”.
Japan’s trade surplus with the U.S. rose to $6.6 billion in April, up 17.7% from a year prior, with 8.3% of it coming from auto exports, according to data released earlier this week. Japan’s export to the U.S. of cars amounted to $40.9 billion in 2018. Mr Trump last week declared that some imported vehicles and car parts posed a “national security threat” upon recommendations from the U.S. Commerce Department, but delayed a decision on raising tariffs by 25% for up to 180 days so as to allow time for the trade talks with Japan, and also the European Union and other auto exporters.
The U.S. currently imposes duties of 2.5% on passenger cars, 2.4% on large motorcycles and 25% on trucks. Even steeper tariffs on Japanese vehicles would deal a hard blow to Japan’s all-important auto industry. Toyota Motor Corp., Japan’s largest automaker, issued a statement last week saying Mr Trump’s threat “sends a message to Toyota that our investments are not welcomed, and the contributions from each of our employees across America are not valued.”
And Akio Toyoda, president of Toyota and Chairman of the Japan Automobile Manufacturers Association, called Trump’s stance “extremely unfortunate”. “We are dismayed to hear a message suggesting that our long-time contributions of investment and employment in the U.S. are not welcomed,” Mr Toyoda added on Tuesday. “As chairman, I am deeply saddened by this decision.” Both statements break with longstanding diplomatic protocol.
Japan, which opposes limits on its exports as a violation of world trade rules, is demanding removal of the existing tariffs in line with terms drafted for the original Trans-Pacific Trade Partnership (TPP), from which Mr Trump withdrew upon assuming office in early 2017 and in which the U.S. had agreed to remove tariffs on passenger cars after 25 years and eliminate most auto part duties immediately.
Mr Trump had pressed Mr Abe for Japanese automakers to build more vehicles in the United States at a meeting in Washington in April, and said at the time that a trade deal could be realised during this May visit, although no concrete deal is likely until June at the earliest. He also wants Japan to cut tariffs on U.S. farm products to restore their competitiveness and provide a boon to the U.S. agricultural sector, which not coincidentally has been a victim of Mr Trump’s trade war with China (Mr Trump promised $16 billion in aid to U.S. farmers Thursday).
Mr Abe, who has been careful not to antagonise Mr Trump and who has arguably been one of the few democratic leaders on the global stage able to forge a successful personal bond with him, faces, however, an Upper House of Councillors election in July that could constrain his ability to strike a deal. His government must strike a balance between avoiding the additional auto tariffs without lowering its own tariffs on agricultural imports to the U.S.
Mr Trump will want a deal before the 2020 U.S. presidential election seriously ramps up, but is also likely to see his negotiating strength vis-à-vis Japan in light of his assessment of his broader trade tactics. Mr Abe will want a basic agreement in place after the election in Japan, but will not be able to enter into one at any cost – with rumours abounding that he may be forced to call a general election – suggesting the potential for a breakdown in negotiations. Such a breakdown in turn could further embolden the Trump administration’s stance, particularly if, as in some quarters, it is perceived that its hard-line tactics against China are working.