Donald Trump’s promise behind closed doors last week to look at rejoining the Trans-Pacific Partnership has quickly set off a round of bemused speculation. How could a president who has railed against the TPP ever since his 2016 election campaign and has touted his pulling out of the pact as one of his greatest achievements be having second thoughts? What might it take for him to bite? And would the other 11 countries have him?
All those questions have a special relevance this week as Japan’s prime minister, Shinzo Abe, visits the US for two days of meetings with Mr Trump. And the example of Japan points to why Mr Trump is unlikely to be joining the TPP any time soon, or at the very least why it would be more complicated than he appreciates.
Mr Trump and his White House, as they often do, quickly played down the TPP U-turn last week after it was divulged by some of the farm state senators who were in the meeting in which Mr Trump ordered his top economic advisers to take another look at the TPP. The message from Mr Trump was that the Great Dealmaker would only rejoin the pact if he got a better deal. He also floated the idea again of a bilateral pact with Japan.
“Would only join TPP if the deal were substantially better than the deal offered to Pres. Obama. We already have BILATERAL deals with six of the eleven nations in TPP, and are working to make a deal with the biggest of those nations, Japan, who has hit us hard on trade for years!” he tweeted soon after the news broke.
If Mr Trump were to secure a promise from his Japanese counterpart this week to work on a bilateral deal, that would be both major news and a surprise. Ever since Mr Trump took office last year proclaiming that bilateral trade deals were better than multilateral trade deals he has struggled to find anyone who might sit down and negotiate such a deal to agree with him.
His administration’s belligerent approach to renegotiating the North American Free Trade Agreement hasn’t helped. Neither has his decision to impose steel tariffs that have largely hurt allies such as Japan more than supposed target China, with whom the trade war Mr Trump is now threatening is frowned on by other potential negotiating partners as well.
Mr Abe staked enormous political capital on joining the TPP when he was invited to do so by the then-president Barack Obama. When Mr Trump came calling for a bilateral agreement the Japanese leader opted to pursue a reduced version of the TPP with the 10 other economies left rather than risk another American misadventure.
Now that he is visiting Washington with the gun of steel tariffs to his head it is hard to see how he would do anything different. His best play these days seems to be to smile, flatter Mr Trump and play for time, which in the trade world is leverage.
The template set by South Korea is hardly encouraging. Would Mr Abe agree to the straitjacket of a quota of 70 per cent of Japan’s 2017 exports of steel to the US as his counterpart in Seoul did? In exchange for what?
Japanese steel mills accounted for 4.7 per cent of the steel products imported into the US last year, or roughly $1.45bn of the just over $29bn in steel the US brought in from overseas in 2017. That is a tiny portion of Japan’s total exports to the US, which last year were worth almost 100 times that at $137bn, according to US trade data. Significantly for Mr Trump, the US also had a $68.8bn deficit in its goods trade with Japan last year. He and his trade tsar, Robert Lighthizer, will want to see that reduced, which potentially would mean more Japanese sacrifices that would be politically unpalatable for many of Mr Abe’s domestic constituents.
The one fear that Mr Abe may have is that Mr Trump is prepared to take more extreme measures against Japan. But even that seems unlikely. A trade war with Japan would be almost as unnerving to financial markets as one with China. And Mr Trump actually needs Japan more than he may appreciate right now in his trade battle with China.
There is one caveat to all this and that is the TPP’s construction. It may actually provide an opportunity for both sides to score a win.
The TPP is structured as a series of bilateral market-access agreements between its 11 constituent members with a set of multilateral rules on top. The US and Japan and their bilateral tussles over the questions of agricultural products such as beef and pork and industrial products such as autos actually held up the original TPP for years more than the discussion of the common rules.
If Mr Trump were to reopen those and, as he did with South Korea, extend some domestic protections for the US auto industry and win a few more Japanese concessions, he would actually be able to claim a win not unlike the one he hailed after negotiations with Seoul. If in exchange for that Mr Abe won a permanent exemption from steel tariffs and the potential trade gains from the US joining the TPP, he too would be able to claim a political win. Mr Trump could also technically claim to have won his bilateral deal.
Such a deal could be hatched relatively speedily. Still, such a scenario feels a long way away. By the end of this week Mr Abe will have come and gone. It’s not clear that the big questions remaining in the trade relationship between two of the world’s three biggest economies will have moved on so quickly.
From the FT
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