Inside the Mad Dash to Seal Trump’s Japan Deal

(Bloomberg) --

It was the trade deal that seemed to come together overnight. So much so, that even Japan was taken off guard by the speed of President Donald Trump’s declaration at a press briefing with Japanese Prime Minister Shinzo Abe at the Group of Seven meetings last month that the nations had struck a trade pact.

The leaders agreed to the broad strokes of a limited trade deal covering agriculture, industrial tariffs and digital trade, but left plenty of loose ends that need to be tied up to achieve Trump’s goal of signing the final deal later this month at the United Nations General Assembly.

To recap what’s at stake: Trump has threatened additional duties of as high as 25% tariffs on cars imported from Japan (and the EU) failing a broader agreement to narrow the U.S. trade deficit. As it stands, the duties on Japanese vehicle imports to the U.S. are now set at 2.5% (and 25% for trucks).

In this final push, what kind of leverage does Japan have?

• The country leapfrogged China to become the largest foreign creditor to the U.S. in June — a position it last held in 2017, according to the latest data published by the Treasury department. The trade war with China has at times stoked speculation that Beijing could weaponize its more than $1 trillion Treasury holdings in retaliation. However unlikely that may seem at the moment, the same concerns could be raised for Japan.
• Japan is the U.S.’s third-largest trading partner, and it’s the fourth-largest export market, including for a large chunk of agricultural goods. Japan could find it a politically astute move to retaliate against any U.S. car tariffs in the Farm Belt — a key support base for Trump. That’s what China has done, and it’s left American farmers reeling.
• And overall, Japan could keep dragging this out and and let the economic pressure on Trump build ahead of his 2020 re-election bid. As the anecdotes from latest U.S. central bank’s “Beige Book” report from business contacts across the country shows, the tariffs and trade policy uncertainty remain a persistent worry for businesses and it’s upended supply chains.

Charting the Trade War

America’s merchandise trade with China continued to sag in July despite a tariff-war truce between the world’s two largest economies that’s since evaporated as President Donald Trump escalated levies and China retaliated.

Today’s Must Reads

• October talks | China and the U.S. announced that face-to-face talks in Washington aimed at ending their tariff war, amid skepticism on both sides that any substantive progress can be made.
• Merkel’s mission | The German chancellor must maintain a hard line when she goes to China this week, but a tough approach comes with risks to for her country’s export-dependent economy.
• Ease up | Japan and South Korea need time to cool down from a feud hurting security ties, former Japanese Defense Minister Itsunori Onodera said of the dispute that the U.S. warns could damage its regional alliance network.
• No winners | Tech leaders in Asia are warning that risks from trade tensions are broadening, accelerating the fragmentation of the industry and threatening collaboration in key research areas.
• Tomato deal fallout | The U.S.-Mexico trade agreement dodged a potential political problem for Trump — a surge in undocumented migrants ahead of the 2020 presidential election.

Economic Analysis

• No-deal Brexit block | U.K. Parliament voted in favor of forcing the prime minister to delay Brexit to Jan. 31 if he can’t get a deal agreed. 
• Stop withholding | The Trump administration is legally required to release a report it prepared about tariffs the president is considering on imports of automobiles and auto parts, a conservative group said Sept. 3 in its lawsuit over the issue.

Coming Up

• Sept. 6: France trade balance
• Sept. 8: China trade balance
• Sept. 9: Germany, Taiwan, U.K. trade balances

To contact the editor responsible for this story: Sarah McGregor at smcgregor5@bloomberg.net, Brendan MurrayZoe Schneeweiss

©2019 Bloomberg L.P.