Japan lower house passes US trade deal to cut tariffs

The momentum to negotiate a deeper trade deal between the US and Japan has waned with Washington focusing on talks with Beijing, Japanese government sources believe. (Reuters)
Updated 20 November 2019

Japan lower house passes US trade deal to cut tariffs

  • Doubts remain over elimination of car import levies under prime minister’s ‘win-win’ agreement

TOKYO: Japan’s lower house of Parliament approved on Tuesday a limited trade deal Prime Minister Shinzo Abe agreed with the US, clearing the way for tariff cuts next year on items, including US farm goods and Japanese machine tools.

But there is uncertainty over how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts, casting doubt on Abe’s assurances the deal he signed with US President Donald Trump was “win-win.”

Japan and the US last month formally signed the limited trade deal to cut tariffs on US farm goods, Japanese machine tools and other products while staving off the threat of higher US car duties.

The government’s proposal to ratify the trade deal will next be brought to the upper house for a vote, but its passage in the powerful lower house increases the chances it will come into force in January.

FASTFACT

Japan and the US last month signed a limited trade deal to cut tariffs on US farm goods, Japanese machine tools and other products .

The deal will give Trump a success he can trumpet to voters, but Abe has said it will bring as much benefit to Japan as to the US.

Japan has estimated the initial deal will boost its economy by about 0.8 percent over the next 10-20 years, when the benefits fully kick in. It also estimated 212.8 billion yen of overall tariffs on Japan’s exports to the US will be reduced.

But the figures were based on the assumption the US would eliminate its tariffs on Japanese autos and auto parts — a major sticking point.

Without those tariff cuts, the reduction in overall US tariffs on Japanese goods would be a little over 10 percent of the government’s projection, according to Japan’s Asahi newspaper and Mitsubishi UFJ Research and Consulting.

After the deal is ratified, Japan and the US have four months to consult on further talks, and Trump has said he wants more trade talks with Japan after the initial deal.

But Japanese government sources familiar with the talks say the momentum to negotiate a deeper deal appears to have waned for now with Washington preoccupied with talks
with Beijing.

“It is unclear whether Washington seriously wants to continue trade talks,” one of the sources said.

“The question is how much time the US can allocate for talks with Japan, even if we start negotiations. There is limited time to conclude talks before the presidential elections.”

Japan and the US already appear to have different interpretations of what was agreed on car tariffs.

Japan has said it has received US assurance that it would scrap tariffs on Japanese cars and car parts, and that the only remaining issue was the timing.

But Washington has not confirmed that.

US Trade Representative Robert Lighthizer has said cars were not included in the agreement, and that it was only Japan’s ambition to discuss car tariffs in the future.

A US document only said customs duties on autos and auto parts “will be subject to further negotiations with respect to the elimination of customs duties.”

“The deal was left vague on the issue of tariff cuts on Japanese auto and auto parts. Otherwise, we couldn’t have reached the agreement,” another source said.

There is also uncertainty on whether Trump will drop threats to impose steep tariffs on Japanese car imports under “Section 232” that gives him authority to do so on national security grounds.

Abe said he had received an assurance from Trump that he would not do that, though analysts say the president could always change his mind, or at least keep Japan guessing.

Opposition parties have attacked Abe for a deal they say is unfair. Critics say Trump could drag
his feet on further negotiations unless he is sure he can win more concessions.

“There is a chance Trump will put pressure on Japan on trade to appeal to his voters,” said Junichi Sugawara, senior research officer at Mizuho Research Institute. “There’s a possibility he could
renew his threat over auto tariffs.”


German economy stagnating despite signs of industrial rebound

Updated 16 December 2019

German economy stagnating despite signs of industrial rebound

  • Indicators at the start of the fourth quarter point to subdued private consumption even though disposable incomes continue to rise
  • Bundesbank says households’ real disposable income fell due to a slowdown in employment growth

BERLIN: The German economy is more or less stagnating, the economy ministry said on Monday, adding there are initial signs that an industrial recession could be coming to an end as orders stabilize.
The ministry also said in its monthly report that indicators at the start of the fourth quarter pointed to subdued private consumption even though disposable incomes continued to rise.
Consumption has helped keep Europe’s biggest economy humming by compensating for weak exports. Trade tensions this year pushed the German manufacturing sector into a recession but the overall economy narrowly escaped the same fate.
“Industrial production has probably not reached the trough,” the ministry said. “But orders and sales have stabilized at a low level. This suggests that industry has gradually stabilized and could pick up slightly in the New Year.”
There are fears that should the manufacturing sector continue to shrink; the slowdown could spread to an otherwise resilient services sector.
IHS Markit’s flash composite Purchasing Managers’ Index (PMI) for December on Monday confirmed the diverging trends: manufacturing activity slipped and services rose.
Markit said the rate of decline in new orders and exports was stabilizing, giving hope for the manufacturing sector.
The German central bank said last week that Germany faced another sluggish year despite a likely rebound in exports as households see their spending power shrink. The Bundesbank said households’ real disposable income fell due to a slowdown in employment growth.
It trimmed its growth forecast for this year to 0.5 percent and halved its prediction for 2020 to 0.6 percent.
In another grim sign for the economy, the BGA trade association said on Monday that wholesalers planned to cut investments and their tendency to hire new staff had decreased despite expectations that their nominal revenue will rise by 2.3 percent to €1.3 billion this year.