Trump’s Latest Deal Not JUSTA Pipe Dream, But Not Easy To Win

President Trump and Prime Minister Abe have signed an agreement to start working towards a full Japan-U.S. free trade agreement (JUSTA?) once “necessary domestic procedures” have been completed. The latter is a reference to Trade Promotion Authority in the United States in particular where the administration has to file a 90 day notice filing to Congress of intent to start trade negotiations. It’s worth noting that Congressional approval is only needed for the final deal and not for their start or progress.

America’s objectives are clearly stated as including a reduction in the bilateral trade deficit between the two countries, centered on the automotive sector and including an increase in access for U.S. manufacturers. That’s similar to the strategy followed in KORUS trade negotiations, as outlined in Panjiva research of March 26, though it isn’t clear whether the negotiations will leave Japan immune from the ongoing section 232 review of the sector.

Panjiva data shows the automotive sector (both cars and parts) accounted for 79.4% of the trade deficit with Japan, or $54.9 billion in the 12 months to July 31. It’s a tall order though – a five-fold rise in American automotive exports (including cars and parts) would cut the trade deficit by 15.8%.

ONE BIG WAY TO DRIVE DOWN THE DEFICIT

Chart segments U.S. merchandise deficit with Japan by product (including automotive vehicles and parts) on a monthly (dotted) and annual average (solid) basis. Source: Panjiva

The move to execute a full FTA is a marked shift from the Japanese government’s prior position which appeared to be focused on getting the U.S. to return to the CPTPP trade deal. There is reference, however, to limits on agricultural deals that Japan’s “previous economic partnership agreements” that would suggest elements of CPTPP may be used. In particular there is a desire to focus on a goods deal above all.

Panjiva analysis shows that products in agriculture where shipments to Japan are less significant than to the rest of the world (ex NAFTA) include soybeans (26% of U.S. agricultural exports globally, only 9% of those to Japan), nuts (8.4% vs. 3.5%) and chicken (3.2% vs. 0.3%).

Aside from agricultural and autos other significant potential export wins include crude and refined oil (6.3% vs. 0.9% and particularly pertinent given the Iran sanctions situation), semiconductors (2.2% vs. 0.7%), and aircraft (11.2% vs. 8.3%).

TIME FOR ANOTHER BEAN DEAL