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(Project of the Kajima Institute of International Peace)

June 2017

Japan-U.S. Economic Dialogue

Tokyo Foundation, Research Fellow,
Takaaki Asano

Japan-U.S. Economic Dialogue was held on April 18th in Tokyo. The dialogue was co-chaired by Deputy Prime Minister Taro Aso and Vice President Mike Pence and the two leaders issued a joint press release agreeing to structure the dialogue along the three policy pillars: trade and investment rules/issues; cooperation in economic and structural policies; and sectoral cooperation. The press release basically reaffirmed what was agreed to by Prime Minister Shinzo Abe and President Donald Trump in February this year during the bilateral summit meeting in the U.S.

Both Vice President Pence and U.S. Secretary of Commerce Wilbur Ross who was also visiting Tokyo at the time indicated that the Trump administration would eventually like to see a bilateral trade agreement vis-à- vis Tokyo. During the presidential campaign, Donald Trump repeatedly criticized multilateral trade agreements including NAFTA and TPP as job-killing trade deals and vowed to open foreign markets for American products through tough bilateral trade negotiations. To avoid another trade friction with the U.S., Japanese government tried to steer clear of issues such as bilateral trade imbalance, weak yen and specific market access agendas like autos or agricultural products. Instead, Abe administration sought to use the opportunity to discuss overall regional economic agenda and high- standard economic rules to frame the ongoing regional economic integration.

As it turns out, the Economic Dialogue started rather quietly against some expectations that Trump administration would try to launch a bilateral FTA negotiation and pry open Japanese market. Strategic and domestic political factors lie behind this reserved U.S. posture. First, under the current strategic environment in East Asia with North Korea ever more defiant to develop ICBM capabilities and nuclear arsenal, as the "secretary of reassurance (Apr.16, Washington Post)," the Vice President could not afford to show the world that the U.S. and Japan were divided over tariff on beef. Secondly, President Trump's delay in filling critical leadership posts has prevented the administration to start a full-fledged trade negotiation vis-à- vis Tokyo. Various media reports explain this delay as a product of power struggle inside the White House. The policy realists and business practitioners have a head start in building their team under National Economic Council led by Gary Cohn or Secretary Steven Mnuchin's Treasury Department.

This relative increase of the realists' influence within the Trump administration is one of the reasons used to explain the policy flip-flops of the President during his first 100 days. Despite his campaign promises on alliance management, China's currency manipulation, or FRB's macro-economic policy, the President has changed his position. President Trump has repeatedly confessed his frustration on the complexity and sluggishness of politics or diplomacy. Aside from the presidential learning curve, many believe that the rise of the policy professionals is behind the somewhat down-to- earth policy decisions by the Trump White House.

According to a poll done by the Chicago Council on Global Affairs, contrary to wide-spread belief, even the Trump supporters were not necessary against strong U.S. commitment to overseas afairs. What separates policy elites and the general public in terms of foreign policy is the negative impact of free trade and immigration on domestic jobs. On this regard, the general public is much more wary about the ongoing globalization than the opinion leaders though there is a general consensus on the direction of U.S. foreign policy as a whole.

Therefore, it is possible that the recent "flip-flops" on the part of President Trump is not really a flip-flop but aligning more accurately to the positions of U.S. public to begin with. The implication of this U.S. political development for Japanese economic diplomacy is that despite the quiet beginning of the bilateral economic talk, Trump administration's desire to opt for bilateral negotiation over multilateral negotiation will pose more difficult challenges for Japanese trade negotiators. Recently, Japan has decided to push for TPP11 framework that is TPP without the U.S. It is diplomatic efforts such as this, along with RCEP and Japan-E.U. EPA, that could create an incentive for the U.S. to remain committed to the regional architecture in East Asia. Japan needs to draw a bigger picture to promote its economic foreign policy and stop thinking how she could ask for a discount when Donald Trump plays hardball.

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