By Anjan Roy
TORONTO: The United States has announced a trade deal with Japan on Tuesday night. In his characteristic hyperbole, Donald Trump announced a “massive trade deal with Japan”.
This might be said to the first trade deal that United States has done with any country since Donald Trump announced his reciprocal tariffs plan to prize open overseas markets for US companies and threat to close the American markets for the rest of the world.
Trump had threatened to impose punitive tariff measures to all of America’s trading partners and asked them to do trade deals against his self-proclaimed deadlines. He had postponed his tariff deadlines time and again and rolled back and forth implantation of his tariff plans.
But tariff and trade agreements cannot be done at a gun point. These cannot be conducted against very stiff deadlines. Trade agreements are extremely detailed exercises and can be worked out over extended time period.
Earlier, Trump had announced completion of three trade deals, with the UK, Vietnam and China, against his avowed aim of doing some 200 deals.
But his earlier two deals were hardly worth the name. UK and Vietnam deals were skimpy. The U.S.-China was concluded against a counter threat of suspending essential exports to USA. It was a reverse gun point agreement, as China had suspended shipments of rare earths materials and other essential industrial inputs.
In the run up to the Chinese agreement, Chinese netizens had taunted Trump with their kind of sardonic humour — Trump Always Chickens Out (TACO). That epithet had stuck to Trump ever since.
But the Japan deal is remarkable. It conforms to the standard trade agreement which spells out sectoral details of trade and market entry norms. As Scott Bessent, US Treasury Secretary, has described the deal: “A good deal is better than a rushed deal”. Going by the reports, and even Trump’s admission, the Japanese trade negotiators has fought and toughly contested agreement.
Japan has always been very protective about its farm sector, particularly rice. It has fought hard to protect its internal rice market.
But apparently, in the present deal Japan has accepted rice imports into Japan, which is a major breakthrough. Besides, Japan has opened up its automobiles markets as well. Although a major car market, Japan had steadfastly avoided importing big American cars into the country and preferred their own cars.
The current trade deal also covers the automobile sector and the two countries would have automobile and components trade at 15% which is far lower than the 25% on all major trade partners, including the European Union.
The other remarkable achievement is that the agreement is not just about imports into the Japanese market. But it also has an investment part under which Japan will invest as much as $550 billion in the United States, which has gone a long way to blistering the confidence in the US as a safe heaven.
With that deal, Donald Trump tariff threat at major trading partners have yielded results. Japanese imports will face as high a tariff as 15% on its exports which is higher than the 10% basic tariff that US now has slapped on all imports.
The Japan trade deal has been reached after furious negotiations between the two sides. According to reports, the Japanese had been very tough negotiators, as they always were reputed to be. However, the prospects of much higher tariffs made them buckle in their stance.
But there are layers and layers of threats and stances in the negotiations. Some experts have pointed out that the Japanese holding of US treasuries was part of the calculations.
Immediately on the heels of the first batch of tariffs by Trump, the bad markets were spooked that these had threatened the entire American financial structure. A crisis in the bond markets had convinced the US president to postponement of the tariffs for ninety days.
It was at that point that the US treasury secretary, Scott Bessent, had intervened to convince the US president to calm down the markets. Japan incidentally holds $1.1 trillion of US treasuries. Any liquidation of part of that holding would have upset the entire financial markets an could have sparked a major crisis.
If any two economies were coupled, it must be he US and Japan’s, without as much as stating. Japan exports tot up to $148 billion and Japan runs a major trade surplus with the United States.
Now that the trade deal with Japan is reached, India will be under greater pressure to conclude its trade agreement with the US. America and India had been working on a trade deal since the current flush of negotiations were started at the behest of USA.
However, although negotiations have made progress, the deal is yet to be sealed and signed. As Piyush Goyal, union commerce minister, had observed, Indian team has done its job. It is up to the US to finally conclude the agreement. (IPA Service)
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