No Easy Route To U.S.-Japan Deal With Car Complications, Beef Battle Ahead — Panjiva
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No Easy Route To U.S.-Japan Deal With Car Complications, Beef Battle Ahead

Ags - Meat/Dairy 138 Cons. Discr. - Autos 661 Japan 381 Tariffs 1169 U.S. 3297

Trade negotiations between the U.S. and Japan should yield a “bilateral trade agreement” that “will establish terms on goods as well as in other key areas, including services”, Vice President Mike Pence has stated after meeting Prime Minister Shinzo Abe, Nikkei reports.

While the Japanese government indicated simply that the two are negotiating to “expand” trade and investment the Vice President’s position is consistent with the U.S. government’s existing stance. Yet, as outlined in Panjiva research of Oct. 16, any wide-ranging deal will likely take more than 12 months to complete.

The desire to reach a wide-ranging deal from the perspective of the Trump administration is understandable given America’s trade deficit with Japan reached $67.7 billion in the 12 months to Sept. 30, Panjiva analysis of official data shows. That was the fourth largest after China, the EU and Mexico.

The central area of debate in that regard should be the automotive industry. Panjiva data shows that, counting vehicles and parts, the industry accounted for a $54.5 billion deficit in the past year, or 80.5% of the total. The negotiations with Japan will complicate, and be complicated by, the parallel section 232 review of the automotive industry. It isn’t clear whether Japan will be de facto exempted from that review or not.

AUTOS THE KEY TO AMERICA’S TRADE DEFICIT WITH JAPAN

Chart shows U.S. trade deficit with Japan in total and specific to autos (parts and vehicles). Calculations include U.S. Census Bureau data.   Source: Panjiva

It isn’t immediately clear, however, how the “autos deficit” will be rectified with a trade-in-goods deal. Japan currently zero rates imports of passenger cars and most related parts, Panjiva analysis of WTO MFN duties shows. While there may be non-tariff barriers to address it may simply be the case that the vehicles American companies have for sale are not desirable to Japanese buyers. Indeed the average U.S. duty of 25% on Japanese exports is arguably the bigger hurdle to trade activity.

There are, however, significant areas where the Japanese government can cut duties on U.S. exports, which totaled $1.62 billion in the 12 months to Sept. 30 shows. The highest duty rates applied by the Japanese government are in agriculture including dairy with an average 22.2% rate with $258 million imported from the U.S. The most lucrative area for tariff reductions though is in beef where duties were worth $655 million, though agriculture has historically been the most controversial area of trade negotiations.

DAIRY HAS THE HIGHEST RATES, BEEF THE LARGEST DUTIES

Chart segments Japanese imports from the U.S. by product (HS-2) by value (x-axis, 12 months to Sept. 30) and average WTO MFN tariff rate (y-axis).   Source: Panjiva

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