02:18 - Source: CNN
Trump: US has massive trade deficit with Japan

Editor’s Note: Paul Sracic chairs the Department of Politics and International Relations at Youngstown State University in Ohio and is currently a visiting Fulbright lecturer at Waseda University in Tokyo. Follow him at @pasracic. The opinions expressed in this commentary are his own.

CNN  — 

Although the US is often said to enjoy a “special relationship” with the United Kingdom, in practical terms, our most important 21st-century ally is about 6,000 miles east of London.

Given the increasing importance of the Indo-Pacific region, Japan, with the number three economy in the world and strategically located near China, North Korea and Russia is, to the United States, the “indispensable country.”

Paul Sracic

On Friday, Japanese Prime Minister Shinzo Abe arrives in Washington to meet with President Donald Trump. This is not the first time Abe has met with Trump; the Prime Minister sat down with the President in November 2016, even before Trump took office. This week’s meeting will also not be the last one between the two leaders this year. Trump is scheduled to visit Japan at the end of next month, and is likely to return about a month later, when the G-20 meets in Osaka.

Friday’s visit (followed by golf on Saturday) commences a crucial period for US-Japan relations. Over the coming months, both sides are going to be making decisions that will either strengthen or weaken this important alliance.

The first involves North Korea. Other than South Korea, no country faces a greater threat from Kim Jong Un’s rogue state than Japan – a fact reinforced in 2017, when North Korea twice fired missiles over the Japanese mainland.

While Japan would welcome an agreement to denuclearize North Korea, there is a concern in Tokyo that Washington will cut a deal to eliminate Kim’s long-range missiles capable of reaching the US mainland, while ignoring the shorter-range ones that threaten Japan. Japan also would like the US to continue to exert pressure on North Korea to fully account for “abductees,” Japanese citizens who were kidnapped by North Korea in the 1970s and 1980s.

The failure of the Trump-Kim summit meeting in Hanoi in February means the US needs to reevaluate its approach to North Korea. There are reports that Trump has given a message to South Korean President Moon Jae-in to be relayed to the North Korean leader. The contents of this note will almost certainly be a topic of conversation between Trump and Abe, and it is important that the two leaders emerge from their meetings with a common understanding of how to approach North Korea. This is true for several reasons.

First, President Trump’s “America First” rhetoric has caused allies, including Japan, to question the reliability of the US as a partner. The administration, for its part, has explicitly reaffirmed the US commitment to defend Japan.

Japan has responded by planning increased defense spending and interpreting its constitution to allow its military to come to the aid of the US. Therefore, unlike America’s relationship with some of its other allies, the US and Japan seem to be on the same page when it comes to alliance responsibilities. Reassuring Japan that its interests are being considered, vis-a-vis North Korea, will not only help the US-Japan relationship, but might also serve as a positive lesson for other allies.

Of course, this lesson is not limited to friends of the US. A united US-Japan approach to North Korea will also place more pressure on Kim Jong Un and his main benefactor, China. At the same time, it is important to ensure that engagement with the North Korea does not emerge as a wedge issue between Japan and South Korea.

Relations between these two crucial US allies have been deteriorating in recent months, and although there is not much that President Trump can do to heal their disputes over history, the US needs to be careful not to worsen the situation.

A less serious but perhaps more immediate issue to be discussed on Friday involves the US-Japan economic relationship. Last fall, the US and Japan agreed to begin negotiating a bilateral free-trade agreement. The two nations’ economies are closely linked. The US is the second-most popular destination for Japanese exports, while Japan provides a major market for US exports, including agricultural products.

Still, the US runs a persistent trade deficit with Japan. Although Japan trails only the UK in the amount of money it invests in the US (and much of that is used to create manufacturing jobs), the trade deficit has provoked Trump to take a hard line with Japan on trade; it likely played a role Trump’s decision to withdraw the US from the Trans-Pacific Partnership.

This withdrawal, however, alongside Japan’s decision to move forward with remaining TPP countries to form the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, while also signing a major trade agreement with the EU, threatens US agricultural exports.

The major cause for the trade deficit between US and Japan is the tremendous imbalance between the import of automobiles between the two nations. Japan is not the only country to run an automobile trade surplus with the US, and the Trump administration has been investigating whether to apply tariffs of up to 25% on imported automobiles. Just as with Trump’s steel and aluminum tariffs, which also apply to Japanese exports, the administration is relying on section 232 of the Trade Act of 1962, a provision that allows presidents to use a national security justification to limit imports.

The meeting will come at an odd time, in tariff deliberations. Section 232 requires an investigation by the Commerce Department, which was completed and which Trump received in February. He’s now on a 90-day clock to decide whether to put those tariffs in place. Friday will be the final scheduled meeting between Trump and Abe before that time is up.

This all leads to rather confusing situation. In September, when the US and Japan agreed to enter into trade negotiations, they issued a joint statement agreeing “to refrain from taking measures against the spirit” of their pledges to work together “during the process of these consultations.”

The Japanese understood that to mean Trump would suspend his threat to place duties on Japanese cars, during negotiations. The problem is that the president had, back on May 23, already asked the Department of Commerce to commence its investigation into whether tariffs could be put into effect.

Perhaps the administration will figure out a way to finesse or delay the 90-day deadline. If so, the terms of a potential agreement are obvious: no auto tariffs in return for Japan lowering its agricultural tariffs to levels consistent with those offered to its partners in the arrangement that replaced TPP – a deal that might be difficult for Japan to accept.

There are few good alternatives. If the US imposes tariffs on auto imports, it will hurt Japan’s economy. It might also lead Japan to retaliate, which would harm a US economy already suffering from a trade war with China. The most serious damage, however, would be to the US-Japan relationship, at a time when that relationship is critical to the economic and foreign policy goals of both countries.

Hopefully, Trump and Abe can avoid that result.