Japan Tunes Out Trump to Save Trade Deal

Two weeks ago, Donald Trump indicated he might reconsider the reversal of his first major foreign policy decision as U.S. president: the United States’ withdrawal from the Trans-Pacific Partnership (TPP). In his customary way, he then went on to reverse his reversal on April 18, declaring on Twitter ‘I don’t like the deal.’ But hopes for an American re-entrance into TPP haven’t entirely died out and Japan, as de-facto leader of the retro-fitted “TPP-11”, continues to publicly press the importance of the deal to Washington, even though it has been privately forced to accept the idea that a US return to the pact is unlikely under Trump.

Encompassing 12 partner countries and approximately 40 percent of the world’s GDP, TPP would have been the world’s largest mega-free trade agreement. Trump has described the deal as “an attack on America’s business” and saw it as a way for foreign competitors to take advantage of the United States. The rejection of TPP featured prominently in his presidential campaign as an integral component of his “America First” economic agenda. TPP was also unpopular on the left, and even former Democratic presidential candidate Sen. Bernie Sanders praised Trump’s move to leave the partnership, expressing support for a new deal that would “help American workers,” not just multinational corporations. By contrast, supporters of TPP saw it as a chance to bolster global growth, to deepen U.S. economic and political ties to East Asia, and — unofficially — to build unity against an increasingly powerful China.

Nobody was worse hit by Trump’s decision than arguably America’s most important ally in Asia: Japan. Prime Minister Shinzo Abe put great political capital into negotiating and pushing the Diet to pass the deal, despite some opposition within his party’s own base before Trump came into office. Tokyo has since pushed for the remaining 11 members to renegotiate the deal, and the “TPP11” — rebranded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — was signed in Chile on March 8.

During his visit to Trump’s Florida resort, Mar-a-Lago, from April 17 to 20, Abe raised this issue, trying to test the waters and get a better understanding of the Trump administration’s thinking – and to determine whether an erratic president can be overruled by more sober, traditionally-free-trade orientated Republican thinkers. The Japanese government believes that Trump only opposes the deal because it was negotiated by the Obama administration, so it hopes a cosmetic alteration to the TPP would be sufficient to persuade the Trump administration to rejoin.

But it’s not clear whether Trump will actually change course once again.  After previously bashing the TPP as “the worst deal imaginable” which would “rape our country,” Trump first hinted in his Davos speech in January that the United States might rejoin if it can get more trade concessions. On April 12, he told an audience of farm-state lawmakers that he will instruct his advisors to actively look into whether the United States would benefit from rejoining the deal. The ostensible reason for Trump’s reconsideration is that it provides a venue for domestic sectors that may suffer from a possible trade war with China to sell their products in the TPP market. The agricultural sector seems particularly well positioned here, with the often-quoted examples of the current 50 percent tariff on U.S. beef in the Japanese market reduced to zero if it rejoins the TPP.

Trump’s emphasis on combating China is a vindication of sorts for the Japanese side. For both Japan and other TPP partners, the deal is about more than just trade. Its geopolitical component is equally important as countries in the Asia-Pacific are coming to terms with a rising China that seems impervious to respect of the liberal international order. The free trade agreement — particularly if coupled with other mega-agreements involving like-minded partners like the European Union — would put more pressure on China to abide by the rules of the global free trade regime than the World Trade Organization is currently able to.

Japan has never made a secret of its strong preference that the United States rejoin TPP. It even renegotiated TPP11 with the United States in mind, including a series of 20 provisions that it would reactivate if America returned to the deal. However, the prospect of negotiating a bilateral U.S.-Japan agreement is a different matter. Japanese Finance Minister Taro Aso told the Diet on March 29 that his country must “definitely avoid” bilateral negotiations with the United States given the two sides’ power imbalance.

Trump’s original tweet ended with a direct reference to this issue: “[we] are working to make a deal with the biggest of [the TPP] nations, Japan, who has hit us hard on trade for years!” The tweet also left the Japanese side confused, however. They weren’t sure if it previewed a stronger push for bilateral negotiations, or if it referenced the Economic Dialogue created last year with the (Japanese) goal of avoiding the start of bilateral negotiations.

Japan’s reaction to Trump’s most recent comments has been cautious so far, as has that of TPP partners Australia, Mexico, and New Zealand. Both Aso and Japanese Foreign Minister Taro Kono welcomed the prospect of the U.S. return, but also stressed that Japan’s current priority is to make sure TPP11 comes into force. Yoshihide Suga, Japan’s chief cabinet secretary, called it a “well-balanced pact” that would be difficult to renegotiate.

Trump has become infamous for his unpredictable character, and his words and tweets carry less weight in Tokyo than at the beginning of his presidential term. Consequently, the reaction from Tokyo has been rather muted, but things would stand differently if Trump would instruct his team to explore actual trade negotiations. During his U.S. visit, Abe will undoubtedly do his utmost to dissuade Trump from pursuing the bilateral free trade agreement path. However, his negotiating hand is rather limited at the moment, as he faces an unraveling scandal that threatens his own leadership back in Tokyo. Abe has put a lot of emphasis domestically on his good personal relationship with Trump, but that did not persuade Trump to exempt Japan from the steel and aluminum tariffs he announced last month, for example.

“The TPP without the U.S. is like a hamburger without the meat,” a Japanese official said privately last year. Indeed, the U.S. withdrawal reduced the incentives for countries like Canada to compromise in negotiations for TPP11. At the end of the day, the return of the United States to the TPP would be a welcome sign for the remaining parties — but only so long as it would not imply any significant renegotiations.

Engaging in lengthy negotiations with an administration known for both its unpredictability and bullying behavior on trade matters is not appealing for any other party involved. Since it would take several weeks or months for the U.S. Trade Representative and National Economic Council to come up with a recommendation, the remaining TPP parties are safe to continue focusing on the TPP11 ratification for now.

The original TPP negotiations started more than 10 years ago, with many sensitive concessions on all sides that would be very difficult to replicate. If the 12 parties find face-saving measures to sprinkle over the initial deal, then this would be an ideal solution for the TPP side and many sectors of the U.S. economy.