U.S., Japan agree to negotiate a free trade agreement

U.S. President Donald Trump has reached an agreement with Japanese Prime Minister Shinzo Abe to open trade talks between the two nations.

Abe resisted for almost two years the push to start bilateral trade talks with its second-largest trading partner, but Trump’s threatened auto tariffs forced him to reconsider. The two countries have agreed that sanctions on auto exports won’t be applied while the talks take place, Abe told reporters.

The United States wants to expand access for its automobile exports to encourage more production and jobs in America. In agricultural goods, Japan won’t offer better conditions than already exist in its other trade agreements, according to a joint statement by the two nations. More access to Japan’s market could help U.S. farmers at risk from China’s tit-for-tat sanctions.

Trump said he expected the talks will come to a “satisfactory conclusion” as he spoke to reporters at the beginning of a meeting with Abe in New York. “It can only be better for the United States, because it couldn’t get any worse than what has happened over the years,” Trump added. Both leaders are attending meetings this week at the United Nations.

Japanese automakers

Shares of Japanese automakers rose in Tokyo. Subaru Corp., which is the most dependent on the U.S. market, jumped more than 4 percent there in morning trading while Mazda Motor Corp. advanced above 3 percent. Heavyweights Toyota Motor Corp. and Nissan Motor Co. made more modest gains.

"I think this is close to about the best result possible for Japan," said Junichi Sugawara, a senior research officer at Mizuho Research Institute, citing the reprieve on auto tariffs and limits to U.S. demands on agriculture. "It’s hard to think this will become an agreement that reduces the U.S. trade deficit with Japan."

The U.S. and Japan want to address bilateral trade in goods during the first phase of the talks over the next few months, U.S. Trade Representative Robert Lighthizer said in a conference call with reporters on Wednesday. The second stage will focus on a deal that would require congressional approval. Lighthizer said he will seek trade-negotiation authority that would give Congress a yes-or-no vote on a final agreement.

The talks, which Abe characterizes as different to negotiations for a full free trade agreement, follow a revamped pact between the U.S. and South Korea. Trade analysts said changes to the Korea agreement were largely cosmetic. It will double to 50,000 the number of cars each U.S. automaker can sell in the Asian nation without meeting local safety standards, but no American company sells much more than 10,000 cars a year in Korea.

Abe had spent political capital on negotiating and finalizing the 12-nation Trans-Pacific Partnership that Trump withdrew from in the first days of his administration. The Japanese leader has repeatedly tried to convince Trump to return to TPP, which the 11 remaining nations are planning to implement in 2019.

Trade resistance

Japan’s farmers, a key constituency for Abe’s ruling Liberal Democratic Party, remain protected to some degree under TPP.

Abe told reporters late Wednesday in the U.S. that he was seeking a win-win relationship, and increased trade and investment with the U.S.

“Since President Trump took office, Japanese companies have decided on a further $20 billion in investment in the U.S., and this will result in 37,000 new jobs,” he said. “This is more than any country in the world and it is the result of flying the flag of free trade,” he added. “We must absolutely not turn back the clock.”

The U.S. and Japan also said they are working together with the European Union to fight “non-market oriented policies and practices by third countries” and advance reforms at the World Trade Organization, according to Wednesday’s statement.

The Commerce Department has until February to determine whether auto imports represent a U.S. security risk, which could lead Trump to impose tariffs and quotas.

Auto hearing

In Washington, D.C., on Wednesday, the Senate Finance Committee held a hearing with general agreement among senators from both parties and industry witnesses that auto tariffs—on top of metal import duties—would only raise costs that hurt suppliers, manufacturers, dealers and consumers.

“The auto industry is not seeking protection and certainly not asking for additional tariffs, which will harm manufacturing in the U.S., harm our workers and most importantly, harm U.S. consumers,’’ said Rick Schostek, executive vice president of Honda North America. “These tariffs will ripple across all aspects of the auto industry and the broader economy.’’

Senators questioned imposing auto tariffs on the grounds of protecting national security, especially with the U.S. economy already being affected by duties on Chinese imports and other administration trade actions.

“Our trade policy should strengthen our relationships with our allies while targeting China’s most harmful trade practices,’’ said Sen. Orrin Hatch, R-Utah, the committee chairman. “Tariffs on autos and auto parts are not going to help us achieve any of these things.’’