Japan Edges Closer to Ratifying Trump’s Phase One Trade Deal

(Bloomberg) --

Japanese Prime Minister Shinzo Abe’s push to ratify a partial U.S. trade deal may have staved off President Donald Trump’s threat of auto tariffs — but that hasn’t stopped opposition lawmakers in Japan from questioning whether Abe cut a raw deal.

On Tuesday, the lower house of the Japanese Diet approved a limited U.S. trade agreement that will harmonize digital trade rules and reduce barriers to Japan’s lucrative agricultural market. The accord is expected to pass the upper house of parliament before Dec. 9.

The move came despite the criticism of some Japanese politicians who said the deal:

• Fails to remove the current 2.5% U.S. tariff on Japanese auto exports
• Lacks a written guarantee that Trump won’t impose national security tariffs on Japanese cars

The first point is valid. Even Trump’s trade chief, Robert Lighthizer, bragged that the pact was superior to the Trans-Pacific Partnership because the U.S. “paid much less” by preserving its 2.5% tariff on Japanese cars and parts.

But the second shortcoming may be less relevant after Trump failed to meet a recent 180-day deadline to trigger tariffs on foreign auto exports using Section 232 of the Trade Expansion Act of 1962, which permits the U.S. president to impose trade restrictions if imports are found to harm national security.

Here it’s worth noting that a panel of U.S. trade experts said Trump’s authority to impose national security tariffs lapsed in a separate but related Section 232 case because he failed act within the statute’s 180-day time frame.

Last week Trump called the Japan deal “just partial” and “only phase one.” So it’s too soon to say whether Abe made the right decision to capitulate in the face of Trump’s threat to target a $50 billion-a-year cornerstone of the Japanese economy.

But it certainly provides a helpful case study for the rest of America’s trade partners as they confront the Trump administration’s maximum-leverage approach to trade negotiations.

Charting the Trade War

Trump’s complaints that a strong dollar is hurting manufacturing overlook a far bigger concern at America’s factories: his trade policies. According the most recent quarterly survey of the National Association of Manufacturers, trade uncertainties were the second-biggest concern on a list of challenges, with more than 63% of respondents ranking it their primary worry.

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• Invest in Taiwan | Taiwan’s push for investment in advanced manufacturing after decades of focusing on China is helping offset the effects of trade turmoil in the region.
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• 2020 prediction | The trade war’s drag on the U.S. and China will fade in 2020 as tariffs on imports from China have likely peaked, according to Goldman Sachs.

Economic Analysis

• Preemptive suspension | Hanoi will suspend some plywood shipments to the U.S. in a move to keep Washington from accusing it of letting tariff dodgers slip wood products through Vietnam.
• Mixed blessing | U.S. tariffs have lowered Oil Country Tubular Goods imports and raised domestic producers’ shares, though deteriorating fundamentals have nevertheless resulted in prices falling this year.

Coming Up

• Nov. 20: Japan trade balance
• Nov. 21: South Korea exports and imports
• Nov. 21: EU trade ministers meet in Brussels

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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