Japan:A Trade War That's Easy to Avoid
Tokyo just wants to get this fight over with.
By Phillip Orchard
Shinzo Abe is set to become Japan’s longest-serving prime minister following his re-election as Liberal Democratic Party chief earlier this month, but he’s entering his third term with a fresh headache gifted from Washington. For the past two years, Tokyo has refused to enter formal bilateral trade negotiations with the United States. On Wednesday, Abe and U.S. President Donald Trump announced an agreement to do just that. The apparent about-face follows a month of threats from Trump that Japan was next on his trade hit list, warning that his warm relationship with Tokyo would end “as soon as I tell them how much they have to pay.” It also comes as Japan remains stuck on the sidelines in the North Korea nuclear negotiations, with Tokyo increasingly concerned that the U.S. will strike a deal that keeps the U.S. mainland safe from North Korean attack while hanging Japan out to dry. With friends like these, who needs the Kim family?
But Tokyo’s conciliatory turn is not motivated by fears that Japan is following China toward a full-blown trade war with the U.S. Nor is Tokyo under any illusions that concessions on trade will make the U.S. any more inclined toward or capable of striking a deal with Pyongyangthat secures the home islands. In reality, there’s a lot less to Japan-U.S. trade tension than meets the eye – not enough to keep a deal out of reach, and certainly not enough to jeopardize the future of the alliance by itself. Still, Japan’s strategic imperatives have left it with little appetite for any protracted feud.
A Trade Spat, At Most
The U.S. trade deficit with Japan and its accompanying political considerations have bedeviled the alliance since about as soon as Japan found its postwar economic footing as a low-cost exporter beginning in the 1960s. This led to a major showdown in the 1980s, when the U.S. and other countries were able to force Japan to strengthen the yen and make a number of structural adjustments. Trump himself has been critical of supposed unfair Japanese trade practices since the 1980s, and he hasn’t spared Japan — in particular, the millions of Japanese cars on U.S. highways — from his trade criticisms since launching his run for the White House.
In 2017, according to official figures, the U.S. deficit with Japan in goods ran just short of $69 billion – the third-largest U.S. trade deficit behind that with China and Mexico – or around 0.35 percent of U.S. gross domestic product. The steel and aluminum tariffs the U.S. slapped on Japan (which was denied the temporary exemptions given to several other countries) in the spring haven’t made much of a dent in the deficit; through August this year, the goods deficit totaled around $40 billion. This is nothing to sneeze at, but the imbalance is not growing rapidly, and it’s a far cry from what it was in the mid-1980s, when it soared to nearly 1.2 percent of U.S. GDP. Since then, moreover, outbound foreign investment has gradually replaced low-cost exports as a primary driver of the Japanese economy. Japan is now the second-largest source of foreign direct investment to the U.S. ($129.1 billion in 2017), supporting an estimated 1.5 million jobs in the U.S. auto sector alone. Meanwhile, as Japan’s economy has matured, the U.S. has built a services surplus with the country ($13.4 billion in 2017).
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