U.S. – Japan Trade Agreement

U.S. – Japan Trade Agreement

Background/Recent Activity

Japan Ratifies Free Trade Deal with United States
Asia Times, December 4, 2019usa_japan_ca_flags

In October of 2018, the U.S. and Japan announced negotiations towards a potential U.S.-Japan FTA. Japan is the third largest economy in the world. Japan is the fourth largest importer of U.S. goods, and the fourth largest source of imports into the U.S.

The first round of U.S.-Japan trade talks began in April 2019 and by September a limited free trade agreement was reached. In early December, Japan’s upper house of parliament approved the limited trade deal. Since no ratification is needed by the U.S. Congress, the deal is now set to go into effect on January 1, 2020.

The limited agreement opened market access for certain U.S. agricultural and industrial goods in Japan. Once it has been implemented, over 90% of U.S. food and agricultural products imported into Japan will either be duty free or receive preferential tariff access. The agreement will give American farmers and ranchers the same advantages as CP-TPP countries selling into the Japanese market. In return, the U.S. will reduce or eliminate tariffs on agricultural and industrial imports from Japan.

There was also a separate agreement between the U.S. and Japan reached on high-standard digital trade. The agreement contained prohibitions on imposing customs duties on digital products sent electronically, as well as ensure barrier-free cross-border data transfers in all sectors, among other things. The U.S.-Japan Digital Trade agreement was approved by Japan’s Diet concurrently and will also go into effect on January 1, 2020.

At the beginning of Trump’s Administration, the President withdrew the U.S. from the Trans-Pacific Partnership in which the U.S. and Japan were leaders. Japan took the lead in passing TPP in the remaining eleven countries, rebranding it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) and the TPP-11. The agreement is effective this as of 2019 and may eventually include other nations.

The TPP-11 will reduce tariffs in countries that together amount to more than 13 percent of the global economy, a total of $10 trillion in GDP, with the United States, it would have represented 40 percent.  Even without the United States, the deal spans a market of nearly 500 million people, making it one of the world’s largest trade agreements.

Ambassador Lighthizer Lauds Japan’s Approval of the U.S.-Japan Trade Agreement and the U.S.-Japan Digital Trade Agreement
U.S. Trade Representative, December 4, 2019

Statement from USTR on Meetings to Discuss the United States-Japan Trade Agreement
U.S. Trade Representative, April 16, 2019

Trump Administration Announces Intent to Negotiate Trade Agreements with Japan, the European Union and the United Kingdom
U.S. Trade Representative, October 16, 2018

Joint Statement of the United States and Japan
White House, September 26, 2018

Impact

Japan is the United States’ fourth largest export partner. The U.S. is a large supplier of chemicals, transportation equipment, and computer and electronic products to Japan. Japan is also one of the largest U.S. foreign markets for agricultural products.

U.S. exports to Japan were $80.317 billion in 2022, a 7.7% increase from 2021. Chemicals, oil and gas, computers and electronic products, agricultural products, processed foods, and transportation equipment and made up the top imports in 2022. U.S. imports from Japan to the United States were $148.33 billion in 2022, representing a 9.9% increase from 2021. Transportation equipment imports accounted for 33% of the total. Non-electrical machinery, chemicals, computer and electronic products, and other electrical equipment made up the other top import categories.

According to the most recent figures, U.S. direct investment to Japan totaled $118.74 billion in 2021, largely in financial, software and internet services (Bureau of Economic Analysis). Foreign direct investment (FDI) from Japan into the United States was $721 billion in 2021. In 2020, Japan was the largest source of FDI in the United States that year. In 2019, Japanese FDI in the United States supported 973,800 jobs and contributed $12.9 billion to research and development, as well as another $82.3 billion to expanding U.S. exports. The top industry sectors for Japanese FDI are: auto components, industrial equipment, plastics, automotive OEM, software and information technology services, and metals. (Select USA)

In California, Japan is the largest source of FDI through foreign-owned enterprises (FOEs). Japanese FOEs in California in 2022 provided 101,169 jobs through 3,471 firms amounting to $11.68 billion in wages. The top jobs by sector are: manufacturing, wholesale trade, financial activities, retail trade, professional/business services, and information. (World Trade Center Los Angeles FDI Report).

California continues to be a top exporting state to Japan, accounting for more than 14.4% of total U.S. exports. Japan has remained California’s fourth largest export market since 2010, after Mexico, Canada and China. California exports to Japan, the world’s third largest economy, totaled $11.607 billion in 2022, representing a 1.6% decrease from 2021. Computers and electronic products accounted for 18% of total exports. Other top exports included non-electrical machinery, chemicals, processed foods, and transportation equipment. California is in the top two exporting states for products being sent to Japan.

Imports into California from Japan were $29.367 billion in 2022, representing a 31.21% increase from 2021. Transportation equipment accounted for more than 34% of total imports. California is currently the top importing state in the United States for products from Japan.

Anticipated Action

The limited trade deal with Japan has moved very quickly with the understanding that there would be a more comprehensive deal signed with Japan in the near future in a second stage of negotiations. Now that the deal has passed, the White House announced that both governments will begin consultations early in 2020 to further negotiations on a broader trade agreement.

The goals for negotiations continuing into 2020 will remain the same; expanding bilateral trade in a mutually beneficial way to achieve freer and more balanced trade, as well as encourage economic development. It is hoped that the U.S. and Japan will continue to expand areas of cooperation and deepen their understanding of each other’s respective views and positions.

CalChamber Position

The California Chamber of Commerce, in keeping with long-standing policy, enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business.

Strengthening economic ties and enhancing regulatory cooperation through agreements with our top trading partners that include both goods and services, including financial services, is essential to eliminating unnecessary regulatory divergences that may act as a drag on economic growth and job creation.

Agreements like this have the capability of ensuring that the United States may continue to gain access to world markets, which will result in an improved economy and additional employment of Americans.

Trading Partner Portal

Resources

News

Blue Dot Network: The Belt and Road Alternative
The Diplomat, April 7, 2020