Japan Caved to Trump on Trade Talks. Now the Real Haggling Begins.

Japan Caved to Trump on Trade Talks. Now the Real Haggling Begins.

TOKYO — When Shinzo Abe sat down for a three-hour dinner with President Trump at Trump Tower in New York in September, the pair celebrated the Japanese prime minister’s 64th birthday.

By the end of that week, it looked as if Mr. Abe was the one who had given Mr. Trump a gift.

Japan acquiesced to direct, two-way trade talks with the United States, dropping its two-year insistence on trying instead to hammer out a pact that included multiple countries. It gave crucial momentum to Mr. Trump’s campaign to redraw trade pacts with longstanding allies like Japan, Canada, Mexico and the European Union, even as he widens a trade war with China.

Japan won some prizes with the move, like forestalling threatened American auto tariffs. Still, holding on to those gains could be tough. The Trump administration has already indicated it may want more from Japan on autos and agriculture. And it has shown it won’t hesitate to turn up the heat when dealing with traditional allies, as it did when it demanded that Canada open its market to American dairy products.

The negotiations will be particularly delicate for Mr. Abe, who has spent a considerable amount of energy developing a personal relationship with Mr. Trump.

Japan has options. It could try to avoid substantive concessions simply by using patience as a bargaining tool. Even as it goes forward with negotiations, it can take some comfort in the fact that, rhetoric aside, the new pacts Mr. Trump has struck with South Korea, Canada and Mexico are not dramatically different from previous deals.

“I think the strategy of the Japanese government is to give them something which doesn’t really hurt Japanese interests, but is something that the U.S. president can say was a big concession,” said Takuji Okubo, managing director and chief economist at Japan Macro Advisors in Tokyo.

Mr. Trump noted Japan’s apparent capitulation in remarks to reporters in New York last month.

Entering bilateral talks “was something that, for various reasons over the years, Japan was unwilling to do,” Mr. Trump said. “And now they are willing to do so.”

In an interview in Tokyo last week, William F. Hagerty, the United States ambassador to Japan, said Japanese officials had not fully grasped political realities in the United States when they pressed for regional talks.

Japan had championed a return to the Trans-Pacific Partnership, the 12-nation pact that Mr. Trump killed during his first week in office. That move, Mr. Hagerty argued, had its roots in the 2016 election and crossed party lines.

“The way it was being portrayed was that it was some sort of unilateral action on behalf of President Trump that took place the first week of him being in office,” said Mr. Hagerty. “I think they thought that we could come back to it.”

“My job has been to convey that political reality,” Mr. Hagerty added, “and to encourage our counterparts in Japan to look forward in terms of our relationship, rather than to continue to look back and asking us to do something that is just a political dead end in the United States.”

Analysts say Japan was nudged to the negotiating table less by such arguments than by Mr. Trump’s threat to impose tariffs on Japanese automobiles. Japan ships about 1.7 million cars to the United States each year, and a 20 percent tariff could add $8.5 billion to manufacturers’ costs, according to an analysis by the Daiwa Institute of Research.

“The threat of auto tariffs was very huge,” said Junya Inose, a senior economist at the Mitsubishi Research Institute in Tokyo.

He said Japan has also closely watched the escalating trade war with China. “We have learned that if we do not talk seriously, maybe the same thing with China may happen even to the Japanese economy,” Mr. Inose said. “Most of the Japanese ministers consider some kind of pain must be paid to calm down Trump.”

Averting auto tariffs was important for Mr. Abe, who recently won a leadership election that could set him up to become the longest-serving prime minister in the country’s history.

If the auto tariffs had been imposed, “it would almost be an instant crisis in bilateral relations,” said Tobias Harris, an expert on Japanese politics at Teneo Intelligence in Washington. “It would have exposed how Abe’s influence with Trump is exceedingly limited. I think avoiding that outcome was a worthy goal in itself.”

As crucial as the delayed auto tariffs, some analysts said, was Washington’s apparent agreement that Japan would not have to open up its markets for agricultural and forestry imports any further than it has already committed to doing in either the Trans-Pacific Partnership or a trade agreement with the European Union.

“I think that was a significant and necessary concession to Japan,” said Wendy Cutler, a former United States trade negotiator who is now managing director of the Washington office of the Asia Society Policy Institute.

With farmers in the United States already suffering from the trade war with China, “they are going to be very anxious to get quick and equal access to the Japanese agricultural market,” said Ms. Cutler.

The Trump administration has indicated it may push for more. Earlier this month, Sonny Perdue, the secretary of agriculture, said the United States “would expect to have an equal or better deal than Japan gave the European Union regarding agriculture.”

Japanese officials insist that the United States will accept the agricultural limits.

“The agreement of the U.S. and Japan states that with regard to agriculture, Japan’s previous economic partnership agreements constitute the maximum level, and the United States will respect the position of Japan,” said Yoshihide Suga, chief cabinet secretary to Mr. Abe, in remarks to reporters. “So I believe that this is our shared understanding.”

Mr. Hagerty said Mr. Trump had acknowledged Japan’s position in discussions with Mr. Abe in New York last month. “It was important that we said we respect it,” the ambassador said. “I‘m not going to get in front of the negotiators because I don’t know the specifics.”

Given Mr. Trump’s persistent and historical focus on the American trade deficit with Japan, analysts said he might not accede to the kind of moderate changes that characterized a revised trade deal with South Korea or the salvaged North American Free Trade Agreement with Canada and Mexico.

With those deals, “Trump already has two so-to-speak report cards to wave in front of the crowd,” said June Park, adjunct professor of international political economy at Hanyang University in Seoul, South Korea. “So cosmetic deals are not what’s really necessary for Trump right now. On Japan he wants something big.”

One of Mr. Trump’s biggest and recurring concerns is perceived barriers to American car exports to Japan. In one of his more outlandish claims earlier this year, Mr. Trump said in a speech that Japanese regulators impose a test in which “they take a bowling ball from 20 feet up in the air and they drop it on the hood of the car. And if the hood dents, then the car doesn’t qualify.” (The White House later said that the president was joking.)

Mr. Trump has repeatedly exhorted Japan to move more auto production to the United States — something it started doing decades ago. Japanese automakers already build about four million cars a year there.

Mr. Hagerty suggested the Japanese could add even more factories. “It’s just better business. It’s Economics 101,” he said. “It de-risks their business model and gets them closer to their market. And the U.S. benefits from the capital investment and the jobs.”

Bilateral talks are expected to start in January, and how deep they go may depend on how quickly the Trump administration wants to score a victory.

A deal “could go broadly or it could be relatively narrow,” said Clara Gillispie, senior director for trade, economic and energy affairs at the National Bureau of Asian Research in Washington. “It’s also a question of how fast versus how slow you want to go in the process.”

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