While Trump and Abe Bond, Their Deputies Talk Trade

  • Japan suggests that Pence, Aso lead economic dialogue
  • Abe comes away with key wins from two-day visit with Trump

Trump Says U.S. Stands Behind Japan 100%

U.S. President Donald Trump spoke of his chemistry with Prime Minister Shinzo Abe over a two-day visit that featured hugs, hand-holding and five hours on the golf course.

Taro Aso

Photographer: Tomohiro Ohsumi/Bloomberg

On trade, an issue that has caused prior tensions, Abe sought to distance the topic from his burgeoning friendship with Trump -- and assign it to Vice President Mike Pence. At Japan’s behest, the leaders put Pence and Deputy Prime Minister Taro Aso, who is also finance minister, in charge of a new economic dialogue that will focus on three themes: monetary policy, cooperative projects and trade.

Mike Pence

Photographer: John Taggart/Bloomberg

“There’s a possibility he may be easier to work with,” Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc. in Tokyo, said of Pence. “He will be under instructions from Trump, so we shouldn’t raise our expectations too high, but he’s probably more logical.”

The arrangement is a sign of progress for Abe on a trip in which he aimed to build a personal rapport with Trump and win his backing for an alliance that guarantees Japan’s security against threats from North Korea and China. While Trump has a tendency to hit out at friends and foes alike -- and large points of friction remain -- for a few days at least he demonstrated a greater appreciation for America’s biggest ally in the region.

Trump has publicly chided Japan, on both the campaign trail and in office, for its trade and currency policies, and what he said was an insufficient contribution to the cost of housing U.S. troops in the country. A missile test by North Korea on Sunday provided an opportunity for Abe and Trump to show unity against its provocations.

TPP Pullout

Now they must figure out a way forward on trade. Japan had the second-largest surplus with the U.S. after China last year, with the bulk of the discrepancy coming from auto exports -- a situation that Trump called “unfair” when he withdrew the U.S. from the Trans-Pacific Partnership, a 12-nation trade pact that took many years to negotiate and was at the ratification stage.

In one of his first acts as president, Trump pulled out of the TPP and called for trade deals with individual countries. By contrast, Pence was at one point in favor of TPP, a pact strongly championed by Abe.

No date has been set for Pence to visit Japan and begin talks, though Aso has invited him to play golf during his stay. A Japanese Finance Ministry official said the process may eventually lead to a bilateral trade agreement.

While the TPP could form the basis for talks, Trump may face difficulty if he wants to further lever open Japan’s agricultural sector. Farmers are a traditional support base for Abe’s ruling party that he has vowed to protect.

Agriculture, Autos

Years of often cantankerous TPP negotiations resulted in Japan agreeing to abolish tariffs on 81 percent of agricultural products, compared with about 97 percent in other member countries, according to Yorizumi Watanabe, a former trade negotiator with the foreign ministry. On the other hand, tariffs would’ve been abolished on 99.9 percent of manufactured goods, in a boost for Japan’s carmakers, Watanabe added.

"One of the major features of the negotiations between the U.S. and Japan was the trade-off between Japan’s sensitive agricultural sector and the sensitive U.S. car sector," Watanabe, now a professor at Keio University, said of two-way talks conducted as part of the TPP process. "The asymmetry between the 81 percent and the 99.9 percent will probably be an issue if negotiations happen under the Trump administration.”

Polls have shown the Japanese public is concerned Trump’s presidency will be bad for the Japanese economy, and it remains to be seen how much that’s changed after the display of friendship between the leaders. Though Trump lavished praise on Abe and said the U.S. was 100 percent behind Japan, he also sounded a note of caution about the relationship and vowed to create “a level playing field” for the currencies of the U.S., Japan and China.

“We have a very, very good bond -- very, very good chemistry,” Trump told reporters in Washington of Abe. “I’ll let you know if it changes, but I don’t think it will.”

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