Japan braces for clash with Trump as China trade war cools

US President Donald Trump wants to crack open Japan's agricultural market and reduce a US$60 billion trade deficit. PHOTO: EPA-EFE

TOKYO (BLOOMBERG, REUTERS) - Japan is finally stepping into the ring for a fight it had managed to dodge for more than two years: Bilateral trade talks with United States President Donald Trump.

The world's third-biggest economy has a lot at stake in the talks, which are expected to start next week in Washington just as the US' negotiations with China appear to be winding down.

Economy Minister Toshimitsu Motegi said on Friday (April 12) that Japan and the US will hold a first round of trade talks next Monday and Tuesday in Washington, to find ways to address US concerns over the large surplus Japan enjoys in bilateral trade.

Mr Motegi said he intends to exchange views frankly with his counterpart, US Trade Representative Robert Lighthizer, and hold good talks based on Japan's national interests.

Prime Minister Shinzo Abe is expected to meet Mr Trump in the US in late April for talks on North Korea and Japan-US trade.

Mr Abe is desperate to avoid tariffs or quotas on lucrative auto exports, while Mr Trump wants to crack open Japan's agricultural market and reduce a US$60 billion (S$81 billion) trade deficit.

Mr Abe has poured energy into courting Mr Trump to maintain a strategic relationship that secures his country against potential threats from North Korea and China. But that doesn't mean Japan will roll over on trade: Mr Abe's government is determined to avoid giving the US a better two-way deal than the multilateral pacts he's negotiated with Europe and Pacific Rim nations.

"It's the US who asked for these bilateral negotiations," said Mr Ichiro Fujisaki, a former Japanese ambassador to the US, who is now president of the Nakasone Peace Institute. "So, it's the US who should put to us what they want, rather than us offering this and that before being asked."

The talks add to worries among investors as Mr Trump turns his gaze from China to trade grudges elsewhere.

The US leader, who will face questions on his success in rebalancing America's trade relationships in next year's presidential campaign, has signalled a willingness to continue market-disrupting tariff threats despite growing economic concerns.

Mr Abe only agreed to bilateral talks after Mr Trump hit Japan's steel and aluminium exports with punitive tariffs last year and later threatened to impose levies of as much as 25 per cent on all imported cars, including those made in Japan.

Mr Trump faces a decision in May on how to proceed with the auto tariffs.

"Japan is now negotiating," he told reporters last month. "They haven't wanted to negotiate for many years, but now they're negotiating. It's called 'tariffs'."

Still, Mr Motegi has been able to observe the Trump administration's previous battles with South Korea, Canada, Mexico and China before sitting down next week with Mr Lighthizer.

In each fight, the US adopted extreme positions that threatened to upend economic ties only to drift toward more modest changes.

Mr Abe has also fortified Japan's position by sealing trade pacts with the European Union and 10 other partners jilted by Mr Trump when he abandoned the Trans-Pacific Partnership shortly after taking office.

Those deals have left US farmers, including beef and pork producers, at risk of losing their 22 per cent share of Japan's food import market to rivals with lower tariffs.

"For Japan, the government has no reason to hasten, to quickly wrap up the negotiations," said Mr Junji Nakagawa, a professor who researches trade issues at Chuogakuin University in Chiba prefecture near Tokyo.

"The impetus for wrapping up negotiations quickly comes from the US side, especially agricultural lobbyists."

The scope of talks will be key. If the US can accept parity with Europe and TPP nations on agriculture - as the two sides suggested in a Sept 26 joint statement - Mr Abe might settle quickly.

Mr Trump is expected to visit Tokyo next month for a state visit with the incoming emperor, Crown Prince Naruhito, and Japan doesn't want trade disputes marring the pageantry.

"We will further expand trade and investment between Japan and the United States in a mutually beneficial manner," Japanese Finance Minister Taro Aso told the US Chamber of Commerce on Thursday in Washington, citing the September statement.

The problem is, the same joint statement also called for reducing Japan's trade surplus - and agriculture parity may not be enough for Mr Trump. Mr Abe could dig in to avoid a one-sided deal, especially with his ruling Liberal Democratic Party facing an upper house election in July.

"Trump has this illusion that somehow there is this unfairness because there are Toyotas lined up on the docks of Los Angeles and there aren't any Fords or GMs on the streets of Tokyo," said Mr Matthew Goodman, who held National Security Council roles under presidents Barack Obama and George W. Bush.

"There's really very few other people in town who believe that this should be a central focus of US-Japan negotiations. But the president wants it. So it's probably going to happen."

Japan, which continues to hold out hope for the US' return to the TPP, could insist on the market access it received under that pact. That means eliminating tariffs on the country's auto parts, which comprised 6 per cent of its exports to the US.

One scenario hinted at in last year's joint statement is a swift agreement on easier issues, followed by a second, more comprehensive round. That would give Mr Trump a win and allow Mr Abe - who will visit Washington later this month - to focus on a rare series of historic events, including Emperor Akihito's planned April 30 abdication and the Group of 20 summit in Osaka.

Ms Wendy Cutler, who led the Obama administration's final TPP push with Japan, said it was unclear whether Mr Trump would adopt the same aggressive approach he was signalling with the EU, which he called a "brutal trading partner" this week.

"That's the key question," Ms Cutler said. "But there are different dynamics here that could lead the administration to recognise that the tactics it has used with other countries may not quite be in its interest this time around."

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