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For once, President Donald Trump may be on the verge of signing a trade pact that benefits Americans. He could strike an even better one if he got out of his own way.
Trump announced that the US and Japan have worked out an initial trade accord. Japan will reportedly lower tariffs on US beef, among other products, to the same levels enjoyed by other signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP). In return, the US will reduce duties on some Japanese agricultural and industrial products. The two sides will also sign new rules on digital trade.
It’s easy to see why Trump wants to close this deal. American farmers, already battered by the trade war with China, have steadily lost market share in Japan to countries such as Canada and Australia that signed the broader Pacific trade agreement. And Trump needs some concrete victories to tout to voters in the heartland. He’s already boasted that Japan will buy “hundreds of millions of dollars†in corn from the US as part of the deal.
Japanese Prime Minister Shinzo Abe’s primary goals have been to head off a threat by Trump to impose steep tariffs on Japanese cars and to avoid any binding commitments on currency policy. He clearly believes a conciliatory attitude is the best path to doing so and, indeed, Trump has said he’s willing to hold off on the tariffs for now. Still, there’s no sign Abe has been able to win a more binding promise.
Given that Trump has proved more adept at disrupting global trade than promoting it, even such a narrow deal is worth celebrating. It eases tensions between the US and its most important ally in Asia, which should in turn boost cooperation on a range of other issues, including China’s rise and the future of US troops in Japan. It should increase trade between the two countries at a moment when global growth is faltering. And the rules on digital trade will help set standards for an increasingly vital sector of the economy.
But it’s worth remembering where this agreement falls short. It may well violate World Trade Organisation (WTO) rules, and will certainly irk other members of the trans-Pacific pact, who will now have to compete against American farmers without gaining added access to US markets. Most important, by not removing the threat of auto tariffs, it leaves a cloud of uncertainty that will hamper planning and investment. Talk of negotiating a broader agreement will almost certainly amount to no more than talk.
This is a wasted opportunity. Economically, the US would gain far more by rejoining the new TPP and pushing to broaden its membership. That would strengthen high standards on intellectual property, digital trade, the environment and labour rights — and, importantly, put real pressure on China to raise its own standards to compete. It would also bind a swath of Asian nations closer to the US with something more concrete than slogans.
Unfortunately, Trump foreclosed that possibility three days after taking office. If he wants a truly transformative trade deal — one that goes well beyond the modest gains he has secured with Japan — there’s still time to fix that mistake.
—Bloomberg