US and Japan agree on the first stage of a new trade agreement

The U.S. and Japan on Wednesday signed a limited trade deal that will eliminate tariffs and expand market access on-farm, industrial and digital products. But the deal does not address autos, a key sticking point during months of contentious negotiations, and President Donald Trump indicated the two countries were still working on a broader agreement. Trump and Japanese Prime Minister Shinzo Abe signed the deal on the sidelines of the U.N. General Assembly. Trump called it the “first stage of a phenomenal new trade agreement” and described it as “outlining the significant steps we’re taking toward a fair and reciprocal trade agreement.” “This is a big chunk, but in the fairly near future we’re going to be having a lot more comprehensive deals signed with Japan,” Trump said.

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Japan PM says the deal is good for both countries

Abe said the agreement is good for both countries. “We have successfully covered a wide range of areas, including not only the industrial goods but also the agricultural products and also the digital trade between the two sides,” Abe said.

Trump has been seeking a bilateral agreement with Japan, the world’s third-largest economy, since pulling out of the Trans-Pacific Partnership trade deal after he took office. Washington would like to reduce a chronic trade imbalance that totaled $67.6 billion in 2018, according to U.S. figures The two sides reached a basic agreement in late August, but a major point of contention has been autos.

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Japan worried that Trump might slap new tariffs 

Japan is worried that Trump might slap new tariffs on its automobiles, which make up a significant amount of its exports to the U.S. Japan also has pushed to eliminate the current 2.5% auto and auto parts tariff. Speaking to reporters later Wednesday, Abe said he received assurances from Trump that a previous agreement not to place more tariffs on Japanese autos or auto parts still stands. “Between President Trump and myself, this has been firmly confirmed that no further additional tariffs will be imposed,” Abe said. United States Trade Representative Robert Lighthizer said it’s not Trump’s intention “at this point” to raise tariffs on Japanese autos. Japan’s trade minister, Isshu Sugawara, and other top trade officials are to meet with heads of Japanese automakers Thursday morning in an apparent attempt to ease their worries. Lighthizer said he expects that Japan will pass the preliminary deal in October or November, with tariffs reductions on U.S. goods kicking in at the beginning of the year.

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U.S. farm groups applauded the announcement

U.S. farm groups applauded the announcement. They have been warning the Trump administration that agricultural producers could soon expect to lose market share in Japan if the United States wasn’t treated on par with top competitors from Canada, Mexico, Australia, and the European Union. Japan, which imports U.S. farm products worth $14 billion, is America’s third-largest market. Trump said Japan will open new markets to approximately $7 billion in U.S. agriculture products, and tariffs would “now be significantly lower or eliminated entirely” on American beef, pork, wheat, cheese, corn, wine and more.

“This is a huge victory for America’s farmers, ranchers, and growers, and that’s very important to me,” Trump said. The deal also covers commitments on $40 billion in digital trade between the countries, Trump said, “which will greatly expand commerce across cutting edge products and services.”

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Some observers criticized the agreement

Some observers criticized the agreement. “The deal is actually a failure,” said Diane Swonk, chief economist at Grant Thornton, a tax advisory firm, “because that means we are still threatening tariffs,” Swonk said the administration’s refusal to drop that threat is an example of the uncertainty around trade policy that has caused large and small businesses to cut back on their investment spending, slowing U.S. economic growth. Myron Brilliant, executive vice president of the U.S. Chamber of Commerce, said the deal is good for American farmers and ranchers and the digital economy, but that “it’s not enough.”

He urged “the administration to hold fast to its commitment to achieve a comprehensive, high-standard trade agreement with Japan that addresses the full range of our trade priorities, including services, intellectual property protection and regulatory barriers to trade.”

After the U.S. withdrew from the TPP, Japan and the other 10 remaining members renegotiated their own deal. Japan reached free trade agreements with TPP countries and the European Union that went into effect at the start of this year. U.S. producers risked losing market share to those countries as their goods faced lower import taxes. “This gives us equal or better than those people,” Lighthizer said.

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