President Trump failed in the US-Japan trade agreement to cover most important causes of our trade deficit: autos. The President also failed to submit the treaty to the Senate as required by the Constitution.
Japan-U.S. Trade Agreement is Weak
Joel D. Joseph, Chairman, Made in USA Foundation
The recent agreement signed by President Trump and Prime Minister Abe of Japan recently will do little to change the imbalance of trade between the United States and Japan. Our trade deficit with Japan was a massive $68 billion last year. Most of the imbalance is due to imports of automobiles and auto parts, two categories of goods that are not even dealt with in this treaty.
The Japan-U.S. Trade Agreement is a treaty because a treaty is a written agreement, or contract, between two or more nations. Under the U.S. Constitution, treaties must be approved by a two-thirds vote in the Senate. Article II, Section 2, Clause 2.The Constitution does not mention "trade agreements" as separate from treaties. Trade agreements are merely one type of treaty, the other category being treaties of peace.
Under Japanese law, Japan's Diet, the country's legislative body, must ratify this treaty before it becomes effective. Similarly, President Trump should submit the agreement to the U.S. Senate for approval.
American Butter and Rice Get the Shaft
French, Australian and New Zealand butter will still rise to the top of Japan's grocery store shelves leaving little room for American butter. Butter is one of several U.S. dairy products that will not get improved access to Japan's 127 million consumers under the proposed agreement. Japan refused to grant new quotas for U.S.-made dairy products while keeping large quotas for France, Australia and New Zealand.
America's rice growers won't benefit from the new trade deal either as tariffs and quotas on U.S. rice imported to Japan set in the early 1990s remain in place. Japan consumes billions of dollars worth of rice, a prime potential market for U.S. rice growers.
Tim Johnson, president and CEO of the California Rice Commission, said he had hoped for a better deal in later phases of U.S.-Japan negotiations. Barley also will not get improved access in the trade accord as Japan did not expand its quota for the grain used widely in beer production.
The Winners are Beef, Pork and Wine
U.S. beef is one of only a few winners in the U.S.-Japan deal. U.S. cattlemen will notice Japanese tariffs falling from 38.5% to nine percent by 2033, on the same schedule as competitors Australia, New Zealand and Canada.
The story is the same for U.S. pork exports to Japan, which topped $1.6 billion in 2018, but now face a significant tariff disadvantage compared to other pork-producing countries. The treaty will put U.S. producers on the same tariff reduction schedule as these competitors, with a 20% tariff for pork dropping to zero within six years.
Japan doesn't buy many U.S.-made cars, but that may be changing. Tesla has opened four showrooms in Japan featuring its mid-size Model 3. Tesla, unlike other U.S. car manufacturers, makes right-hand drive cars that can be sold in Japan as well as the U.K. and South Africa.
Japan's tariffs on U.S. wines will decline, from 15% to 7.1% on April 1, 2020.
None of these decreases will make much of a dent in the U.S.-Japan trade deficit. Japan pays a paltry 2.5% on auto and auto part imports in the United States, significantly less than beef and pork will be charged by Japan in 14 long years.
Japan has been allowed to keep its laws on cars and rice quotas in place without change. We will see how Japan treats Tesla as its sales of the Model 3 rise there. In the past Japan has imposed "non-tariff" barriers to many U.S. products.
Prime Minister Abe said President Trump agreed not to impose threatened "Section 232" tariffs on Japanese cars and parts on national security grounds. President Trump gave up a lot, and gained very little, through this new agreement.
The Japan-U.S. Trade agreement demonstrates that President Trump is not a very good negotiator. The trade agreement is partial at best, leaving major items to be negotiated in the future. Even if the President does not submit the treaty to Congress for its approval, Congress should enact legislation to either vote it up or down.
Chairman, Made in the USA Foundation, economist and lawyer, author of ten books and hundreds of articles.