Does the New U.S.-Japan Trade Deal Matter?

U.S. President Donald J. Trump and Japanese Prime Minister Shinzo Abe recently announced a limited agreement to lower tariffs and other barriers to trade between their countries. Trump hailed the deal as “phenomenal,” but trade experts and some in Congress remain skeptical.

What’s the deal?

The U.S.-Japan trade agreement represents a breakthrough. It’s the first trade deal the president has reached with a major trading partner that, because its limited scope does not require congressional approval, could soon take full effect.

Almost three years into his presidency, Trump had only reached one other trade agreement that went into effect—a minor renegotiation of the U.S.-Korea Free Trade Agreement. His negotiators also reached an agreement on a new North American Free Trade Agreement (NAFTA), but that must still be passed by both the Senate and the Democratic-controlled House of Representatives.

Japan is the United States’ fourth-largest trading partner in goods, and the two countries did $217.6 billion worth of two-way goods trade in 2018. Moreover, U.S. agricultural exports to Japan in 2018 totaled $13 billion, making Japan the third-largest agricultural export market and highlighting Japan’s importance to U.S. farmers.

What does it do? What doesn’t it do?

The deal has two main components: lower tariffs on some agricultural and industrial trade between the two countries, and a separate accord on digital trade. The digital part prohibits data localization requirements and barriers to cross-border data flows. Digital trade between the two countries amounts to $38 billion annually, and U.S. Trade Representative Robert Lighthizer called the new digital trade agreement “the gold standard.”

Yet most of the focus has been on the reduced tariffs. Japan agreed to cut tariffs on some imports of U.S. beef, pork, nuts, berries, and cheeses. Specifically, tariffs on $2.9 billion in Japanese imports of U.S. beef and pork will be reduced, and Japan’s import taxes on $4.3 billion worth of items such as nuts, berries, wine, and cheese will be eliminated completely. This should help U.S. farmers and ranchers whose potential access to the Japanese market was undercut when the United States withdrew from the Trans-Pacific Partnership (TPP), leaving ten other countries facing comparatively favorable tariff rates when they export to Japan. In return, the United States will cut rates on many Japanese industrial and agricultural products such as bicycles, musical instruments, Wagyu beef, and soy sauce.

But some experts have pointed out that the TPP eliminated more barriers to trade with Japan. Senator Tom Carper (D-DE) called the new deal “TPP-light—very light,” and his Senate Finance Committee colleague John Cornyn (R-TX) agreed that he, too, preferred the TPP. Critics have highlighted omissions from the new deal: notably, U.S. rice and some dairy exports to Japan will continue to face trade barriers, as will automobiles. Japanese automakers account for 40 percent of all vehicles sold in the United States, and U.S. officials placated Japanese negotiators who feared Trump could place tariffs on Japanese cars by promising they would “refrain from taking measures against the spirit of the deal.”

Is this a done deal?

The deal could enter into force in January, and Trump administration officials say they have crafted it in such a way that it will avoid any legislative hurdles. Congress, of course, might see things differently.

Yet the deal could face scrutiny on other fronts. The World Trade Organization (WTO) only allows bilateral trade agreements that cover “substantially all” trade, a somewhat-vague rule that this deal does not satisfy. The logic behind the requirement is that it allows countries to liberalize trade through bilateral agreements without violating the WTO’s most-favored nation principle.

Negotiators have attempted to circumvent this “substantially all” requirement by framing the deal as step one along the road to an eventual free trade agreement, but skeptics doubt President Trump would be willing to drop tariffs on items such as cars, which would be essential under a broader deal. Instead, limited deals like this one might become the norm under his administration. As CFR’s Jennifer Hillman writes, “I, for one, won’t hold my breath waiting for a bigger deal.”