Trade Winds
Tokyo to Trump: Let’s Make A Deal

President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) has already set off a high-stakes competition among Asian countries looking to advance their own trade agendas in the absence of U.S. leadership. But Japan has not quite given up on bringing Washington back into the free trade fold. The Wall Street Journal reports:

Prime Minister Shinzo Abe said Thursday he was willing to consider two-way trade talks with the U.S., a response to President Donald Trump ’s decision to withdraw the U.S. from the 12-nation Trans-Pacific Partnership.

In pulling out of the TPP, an agreement Tokyo had ratified in December, Mr. Trump said he preferred to conclude two-way deals with trading partners.

Asked about this in parliament on Thursday, Mr. Abe said he still hoped to persuade Mr. Trump to change his mind on TPP, but that “doesn’t mean Japan won’t hold bilateral free-trade talks with the U.S.”

Abe is clearly keeping his options open, including the faint hope that he could convince Trump to do an about-face and rejoin the TPP. Given the apparent centrality of protectionism to Trump’s governing agenda, that is a long shot. Alternatively, Abe may hoping that Japan could keep the TPP framework together, and open for a more free-trade-friendly future U.S. administration to join at a later date.

Of course, the most likely outcome is a bilateral trade deal, which would play to Trump’s own stated preferences and help Abe save face. The Japanese PM has staked a great deal of political capital on the pursuit of TPP, a key component of his “Abenomics”. After taking on Japan’s agricultural lobby and pushing through controversial structural reforms to get his country ready for TPP, Abe needs something to show for it. A bilateral deal with the United States will have to do.

This is not to say that the negotiations will be easy, or that a deal is a foregone conclusion. In a meeting with top auto executives this week, for instance, Trump complained about the Japanese auto industry’s supposedly “unfair” practices of flooding the American market with cars. By contrast, one of Abe’s key priorities going into negotiations would be to preserve the TPP provision that lowered U.S. tariffs on those very cars.

However these negotiations play out, Abe’s latest comments suggest Japan is not ready to cede the trade agenda to China, as many other TPP members appear ready to do in the wake of the pact’s collapse. Given its strategic interest in containing China, Japan may prefer a series of painstaking bilateral trade negotiations to a ready-made Chinese alternative that could empower Beijing.

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