Trump's Focus on Cars Ignores a Large Slice of Japan's Economy

(Bloomberg) -- It’s a safe bet you won’t hear President Donald Trump talk much about services as the U.S. and Japan prepare for upcoming trade talks.

For him, it’s all about cars, and to a lesser extent farm products such as pork and beef -- old-school trade goods that will be the U.S. focus during the talks. Trump has threatened tariffs on auto imports while insisting on greater access to Japan for U.S. carmakers.

What gets little mention by the White House is that the U.S. has quietly doubled its surplus in services trade with Japan over the past decade as American companies such as insurers and telecommunications firms grew their businesses in Japan. A greater focus on those opportunities would make sense, given that manufacturing accounts for only 11 percent of the U.S. economy.

Trump's Focus on Cars Ignores a Large Slice of Japan's Economy

Digital economy companies including Google and Facebook have also done well in Japan over the past decade, said Christopher Lafleur, chairman of the American Chamber of Commerce in Japan. The importance of delivering services, including in the Internet space, will continue to grow even as Japan’s population slowly declines, he said.

Last year the ACCJ submitted a set of objectives to the U.S. Trade Representative that included greater access in sectors such as financial services and electronic payment services, Lafleur said.

For now, though, the U.S.’s focus remains on cars and agricultural products. Helping financial companies expand their market share in Japan wouldn’t have as much impact in U.S. "rust belt" states on election day as wrenching Japan’s car market open a bit wider.

“If you look at how the service sector has performed, it’s more logical for the U.S. to focus on that, but that’s not the president’s support base,” said Atsushi Takeda, chief economist at Itochu Corp. “Trying to strengthen that part of U.S. trade would probably never occur to him.”

Of course, the latest services surplus with Japan is only around a third of the size of the goods deficit.

Trump's Focus on Cars Ignores a Large Slice of Japan's Economy

Yet the realities of employment in the U.S. also argue for a stronger interest in expanding services exports. Back in 1990, manufacturing was the leading employer in most U.S. states, followed by retail trade. By 2013, health care and social assistance was the dominant employer in 34 states, according to the U.S. Bureau of Labor Statistics.

There is no start date for U.S.-Japan trade talks, as the U.S. remains preoccupied with its talks with China.

For Japan, its growing bilateral services deficit might help it blunt the U.S. push on goods. So could Japan’s narrowing goods trade surplus with the U.S., which declined by 8.1 percent in 2018, thanks to weaker exports of cars and auto parts to America and rising imports of aircraft and oil.

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