The withdrawal of the US from the Trans-Pacific Partnership trade agreement lift it exposed on two fronts. First, the TPP was going to modernize the NAFTA. Without, the US remains locked in protracted negotiations. A breakthrough in talks with Mexico has been reportedly imminent for weeks. Talks with Canada have apparently not progressed very far in recently, and the US insistence on a sunset clause remains a deal-breaker.  

Second, is a trade agreement with the world’s third-largest economy, Japan. About four months ago, Trump and Abe agreed to establish a new framework to discuss “free, fair, and reciprocal” trade. This new framework kicks off tomorrow with talks in Washington between US Trade Rep Lighthizer and Japan’s Economy Minister Motegi. Expectations should be kept to a minimum. The US wants a win, of course, and Japan may simply hope to deter more aggressive protectionism from the US, and hopes to avoid a new tariff on autos.

Lighthizer has expressed his desire for a bilateral accord. The standard US demands include opening up Japan’s agriculture sector to more US product, and the US has long wished Japan would buy more US autos. Abe had been initially reluctant to embrace the TPP, but since he did, he has not been fickle. The TPP has gone forward without US participation. Montegi may press Lighthiser to reconsider, but it’s extremely doubtful that he will agree.  At the same time, Lighthizer is most unlikely to get Japan to defect from the TPP-11 agreement by offering the US better terms. Indeed, some other countries want to join TPP, including South Korea, Thailand, Colombia, and ironically, the UK.

For nearly 40 years, US-Japanese trade tensions have been a recurring theme. Voluntary export restrictions and orderly market agreements, which were acceptable under GATT but not the WTO, were used by the Reagan Administration to address the trade imbalance. The US bilateral goods trade deficit with Japan stood at $46.2 bln in 1985 and $41.1 bln in 1990. In the last four years, the annual shortfall has hovered near $69 bln.