September 9, 2019 / 11:58 PM / a month ago

Deadline looming, Japan struggles to elude Trump tariff threat

TOKYO (Reuters) - Japan’s Prime Minister Shinzo Abe may have averted giving away too much in trade talks with U.S. President Donald Trump but Tokyo is struggling ahead of a late-month deadline to achieve its primary goal: get the unpredictable president to drop threats of punitive auto tariffs.

FILE PHOTO: U.S. President Donald Trump and Japan's Prime Minister Shinzo Abe shake hands at a bilateral meeting during the G7 summit in Biarritz, France, August 25, 2019. REUTERS/Carlos Barria/File Photo

Even after announcing a preliminary deal with Abe on Aug. 25, Trump left open the possibility of slapping higher duties on Japanese vehicles, a mainstay of the world’s third-biggest economy and by far Japan’s biggest export to the United States.

Trump and Abe are seeking a final agreement in time for their expected meeting on the sidelines of the United Nations General Assembly later this month.

But negotiators have only just begun working out details, such as how much tariffs will be cut for which items, Japanese government officials familiar with the negotiations told Reuters.

A deal this month could be tricky, as there’s little time to nail down the wording for politically sensitive areas such as farm products and autos, and clear any legal hurdles, the officials say.

“There’s really no deal between the two countries yet,” one official said. “Negotiations have only just begun.”

Trump and Abe announced their agreement on the core principles of the deal, with Tokyo promising to cut tariffs on U.S. agricultural products and Washington doing likewise on select industrial goods from Japan.

Japan managed to keep tariff cuts on U.S. beef and pork imports within levels granted to signatories of the multilateral Trans-Pacific Partnership (TPP) deal - meeting a pledge Abe had made to domestic producers.

Tokyo also skirted pressure, at least for now, to agree to avoid currency “devaluations” - a demand of U.S. lawmakers that would have tied Japan’s ability to intervene in currency markets should the yen spike and threaten the country’s export-reliant economy.

And it only took a commitment from Abe to front-load already planned purchases of U.S. corn imports to allow Trump to claim victory in announcing the preliminary deal.

“It’s a very big transaction,” Trump said, alongside Abe on the sidelines of a summit in France of the Group of Seven leading industrialized nations. “It’s billions and billions of dollars. Tremendous for the farmers.”

Japanese officials say the country’s total feed corn imports won’t increase as a result of the deal, which simply front loads three months’ worth of roughly 2.75 million tons of imports.

As private companies have the final say in how much feed corn they import, the government will only facilitate purchases by subsidizing storage fees, they say.

Japan imports roughly 11 million tons of feed corn per year, of which 95% come from the United States, data by the Finance Ministry show. That is worth about 254 billion yen ($2.4 billion), suggesting three months of front-loading would have a negligible impact on Japan’s 6.5 trillion yen ($60.4 billion) trade surplus with the United States.

“It’s not fake, but it’s not a fundamental solution” to address the huge U.S. trade deficit with Japan, said one of the officials familiar with the negotiations. “The whole point is to make Trump happy.”

Some Japanese officials said they were uncertain whether such sweeteners would have a lasting effect on Trump, who has made it a priority to fix the huge U.S. trade deficit with other countries.

Among steps he has taken is a threat to slap higher tariffs on vehicles and parts imported from Japan under Section 232 of the Trade Expansion Act, on national security grounds. About two-thirds of Japan’s trade surplus with the United States is made up by autos.

For Japan, the whole point of signing a two-way trade deal with the United States is to avoid the higher tariffs. After several rounds of negotiations, Washington promised Tokyo it will not impose the tariffs while trade talks continue.

Trump said last month he will not “immediately” impose the higher auto tariffs, but wouldn’t confirm the decision was permanent.

Japan’s Economy Minister Toshimitsu Motegi has said the issue will be dealt with “in the final stages of negotiations,” suggesting that talks on the auto tariffs would continue.

Japanese policymakers and lawmakers involved in the negotiations concede that they have little idea how to get assurance from Trump that he will drop his threat of higher auto tariffs.

Another concern they have is the possibility, albeit slim, that Washington could set import curbs on Japanese automobiles, which would devastate the country’s export-reliant economy.

“It’s very hard for negotiators,” a second official said. “Trump could change his mind any time.”

Additional reporting by Yoshifumi Takemoto, Linda Sieg and Yuka Obayashi; Editing by Neil Fullick

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