The changes to NAFTA were that they renamed it. There was virtually no substantive change. Trump simply pretends he makes changes and his minions cheer. The Japanese didn't cave to anything. They simply realized that the president is a moron and doesn't actually do anything real but just pretends to do things. They only have to go through the Kabuki dance. Which I believe they are expert at.
2
"Japan had championed a return to the Trans-Pacific Partnership, the 12-nation pact that Mr. Trump killed during his first week in office."
President Trump did not kill the Obama era TTP trade agreement...it is still very much alive. He just declined to have the United States join it. Fake news much?
Re the comment below that the US could "find itself isolated" -- charmingly makes it sound like an unintended consequence. As opposed to the predicted consequence of US bullying on the global economy finally taken too far. Just track the national conversations happening in the countries that we have "negotiated' with recently. This isn't just about trade. This is about the world's view of the US -- not always the most positive to be sure, but we have mightily done are best to take it to a new level.
They didn’t “cave,” they delayed, a strategy they prefer sometimes to their advantage.
Mary Churchill
1
With the US & China embracing Mercantilism in practice, if not overtly, in place of free trade, the EU & the Pacific Rim countries (i.e. the signers of the CPTPP) are the remaining blocs that support the post-WW II impetus towards rules & international institutions based free trade.
Serious efforts are underway for the EU & Pacific Rim countries (including Canada & Mexico) to increase their trade links & international trade cooperation.
China, the economically weaker of the 2 Mercantilist super-powers, is trying to find areas of greater trade accord with both the EU & & the Pacific Rim countries.
The foregoing suggests a developing environment in which the US could find itself increasingly isolated (to its disadvantage) in both international trade & general geopolitical affairs matters if it is too strident & rapacious in its trade negotiations.
Trade protectionism is a lose-lose game. So what Trump is doing with China is going to cost Chinese manufactures and American consumers.
And foreign exchange manipulation is just another form of trade protectionism. Just as China have been, so has Japan been manipulating the strength of its currency. As net exporters, both China and Japan have been manipulating to weaken their currencies. This kind of behavior triggers trade wars, hence the same as what Trump is doing.
Many people know it as a fact that the only times Yen has gained strength beyond 100yen per dollar (which means sub 100yen per dollar) is during a combined total of 5yrs out of 73yrs of postwar period when LDP had lost power. Evidence shows clearly that LDP is manipulating its currency, and has been for decades now.
2
@BLOG joekimgroup.com --- Everytime Japan or China buys US bonds that will reduce the surplus dollars outside the US and so keep the relative value of the dollar high. Other methods include all kinds of investment in the US.
There are some dark market tricks that can influence currency prices short term, but in the long run it is transparent. The US can and should limit its non sovereign bond sales in order to keep the dollar at an export competitive level.
It is the Bank of Japan who has been engaged in large-scale asset purchases of government bonds and corporate equities to manipulate the value of the Yen lower. It has been buying up almost the entire new supply of JGBs (Japanese Government Bonds), to the point that the BoJ will soon own almost half of all JGBs. It has also been aggressively purchasing domestic stocks via ETFs. The BoJ now owns more than 60 percent of all Japanese ETFs.
According to Bloomberg, "The Bank of Japan's Unstoppable Rise to Shareholder No. 1" (Aug 15, 2016):
"The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace. Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg.
“Only in Japan does the central bank show its face in the stock market this much,” said Masahiro Ichikawa, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management Co., which oversees about 12 trillion yen ($118 billion). “Investors are asking whether this is really right. The central bank owned about 60 percent of Japan’s domestic ETFs at the end of June, according to Investment Trusts Association figures, BOJ disclosures and data compiled by Bloomberg. Based on a report released on Friday by the Investment Trusts Association, that figure rose to about 62 percent in July."
1
A provision to address currency manipulation must also be included in any bilateral trade agreement between the U.S. and Japan. The Japanese govt has been pursuing a weak Yen policy to help exporters. It has used a combination of easy monetary policy and aggressive QE to accomplish this very effectively.
Japan's QE is already more than twice as large as was the case with the U.S. after the final crisis (when adjusted for the size of the two economies) and that the BOJ is still continuing its aggressive and open-ended program to devalue the Yen. By all accounts the Yen is currently undervalued by at least 20 percent as a result of BOJ policies, which is something that directly contributes to the huge and chronic U.S. trade deficit with Japan.
As The Nikkei newspaper reported, the Japanese govt continues to spend hundreds of billions of dollars to buy shares of the country's largest corporations ("At 40% of Japan's listed companies, BOJ is top-10 shareholder", Nikkei Asian Review, June 27, 2018). According to this piece:
"The Bank of Japan has become a major shareholder in nearly 40% of listed companies as the central bank keeps buying stocks under its ultraloose monetary policy. The BOJ has amassed an estimated 25 trillion yen ($227 billion) of equities as a result of purchasing exchange-traded funds...Nikkei's estimate of the BOJ's effective ownership ratios showed that the bank was one of the top 10 shareholders in 1,446 listed companies out of 3,735 at the end of March."
3
@Steve Jackman - China and Japan each own over $1 trillion dollars in US treasuries. THAT is how currency is long term so-called manipulated - simply by buying Treasuries and otherwise investing in the US.
To realize an export competitive dollar, the US should stop massive non-sovereign treasury sales.
@Craig H.
Japan's currency manipulation is a well established fact. Even Takuji Okubo, who has been quoted in this NY Times piece, agrees that Japanese actions amount to currency manipulation. In a CNBC article, Mr. Okubo is on the record as having said the following:
"To be sure, at least one analyst believes Japan's monetary policy should be considered currency manipulation. "In our view, the accusation is essentially valid," Takuji Okubo, chief economist at Japan Macro Advisors, said in a note last week.
"Japanese policy makers have been guiding, if not manipulating, the yen lower in the last four years." Okubo noted that taking measures to tamp down the yen was one of Abe's campaign promises in 2012. "While it is true that Japan has not directly intervened in the foreign exchange rate market, Japanese government officials clearly prefer weaker yen, say so explicitly from time to time and they have taken measures they know would influence the yen to weaken," he said."
1
As an American expat in Japan, it is frankly embarassing to read that Japan's mere agreement to just enter into bilateral trade negotiations with the U.S. is somehow considered a major concession by Japan. How did Japan wrap the U.S. around its finger to such an extent?
Japan is a country that has a roughly USD 70 Billion annual trade surplus with the U.S. It has the most closed market in the developed world when it comes to access for American products, while at the same time getting completely open and unfettered access to the American market for Japanese products. Not to mention that the U.S. pays for the majority of Japan's Defence costs since the country relies almost completely on the U.S. for its Defence.
Yet, the mere act of Japan agreeing to hold bilateral trade talks with the U.S. in order to achieve more balanced, fair and reciprocal trade between the two countries is considered a major concession by Japan? Sad!
3
@Steve Jackman
What's sad is how someone living in Japan can be so uninformed or willing to misinform others.
A class in Economics 101 would have taught you that trade imbalances are caused primarily by an imbalance between domestic investments and domestic savings. 68% of the U.S. GDP is consumer consumption, compared with about 54% in Japan, and 50% in Germany. If you and Trump want to reduce the trade deficit, then it will require American consumers to consume less. Perhaps that is what Trump hopes to do by taxing Americans with tariffs.
Regarding military spending, here again are the facts. Japan pays the U.S. $2 billion annually to station U.S. troops there. That is more than half the U.S. military budget spent there. Japan has also agreed to spend $12 billion to build a new U.S. base in Okinawa. If U.S. troops were withdrawn from Japan, they would still have to be paid for, unless the idea was to retreat from the Asia/Pacific region, which may be what Trump wants to do.
BTW, a word of advice: You'll find that it's easier to make friends during your stay in Japan if you paid more attention to facts instead of denigrating your hosts with Trumpisms.
5
I've been living in Japan more than ten years, during which time I have worked in management at Japanese corporations, multinationals and for the U.S. government here for many years. I know Japan better than most foreigners.
The U.S. trade deficit is a direct result of Japan's extremely closed domestic markets and its currency manipulation to keep the value of the Yen artificially low. Japan has the world's most closed domestic market due to horrendous tariff and non-tariff barriers. It boggles my mind, why my American government would provide such open and unfettered access for Japanese companies to sell their products in the U.S., when the Japanese government has for decades used all sorts of clever and devious ways of shutting American products out of the Japanese market.
You are also completely wrong on the costs the U.S. incurs for its bases to protect Japan. The fact is that Japan contributes a tiny fraction towards these costs. Sadly, the U.S. government does not provide fully-loaded accounting to show the actual financial burden of the U.S. bases, because that would alarm most Americans. The publicly available figures use fuzzy accounting. Once you account for the rent the U.S. pays Japan for use of facilities in Japan and the salaries the U.S. pays to local Japanese staff at bases, you will see that Japan is actually contributing an extremely small part of the full costs incurred by the U.S. military. It should bother Americans that Japan is getting a free ride.
1
@Steve Jackman
I speak from 30 years of business and legal experience between the two countries.
You continue to make unsupported and erroneous claims without providing facts. Case in point: "Japan has the world's most closed domestic market due to horrendous tariff and non-tariff barriers." The OECD publishes average tariff rates for each country. Here is what they say for manufactured goods: U.S. = 4.0%; Japan = 2.9%; EC = 4.4%.
U.S. tariffs on motor vehicles imports are 2.5% for cars, 25% for light trucks. Japanese tariffs are zero for both cars and light trucks. So explain to me how Japan's tariffs are "horrendous" by comparison.
You made the same specious and uninformed arguments below about Japanese auto manufacturing presence in the U.S. which you have failed to refute. If you had worked for or with these manufacturers, and visited those plants, you wouldn't be making those false allegations. So what is your agenda? Who do you work for?
my toyota was built i think in tennessee. might be the carolina it is next to.
1
America should not be content to be simply Japan's assembly plant. Most Japanese cars sold in the U.S. as "American made" have in fact very little in way of American content. Much of what Japanese auto companies do at their plants in America is not manufacturing, but rather assembly. According to The Japan Times (Trade heat from Trump makes Toyota’s test in U.S. even tougher, Feb 7, 2017):
"Toyota still imports (to America) a significant proportion of high-value components like engines and transmissions, said Takaki Nakanishi, the top-ranked auto analyst for six consecutive years through 2009 in rankings by Nikkei Veritas. “Japan’s auto industry has not sufficiently localized operations in the U.S., its largest sales destination market,” Nakanishi, a Tokyo-based analyst for Jefferies Group LLC, wrote in a Jan. 30 report."
The Kogod Made in America Auto Index looks at where the engines and transmissions are made, as well as where the research and development is done, and who collects the profits.
Japanese cars sold in America do very poorly based on the Kogod Made in America Auto Index. The 2016 index shows that the top 25 made in America cars are all made by U.S. automakers, with only one exception. On the other hand, the very bottom of the index is dominated by Japanese brands. This means they contribute virtually nothing to the American economy. In fact, by taking market share away from American auto companies, they have a net negative effect on the U.S. economy.
2
I don't think Trump is trying to "solve" anything. His marching orders from Putin are to destroy our longstanding alliances.
It's really the only common thread through all his actions.
13
In a word: "Rice". This is about the Japanese opening their markets to our Ag and forest products. The consortium of Rice Growers has a huge influence on Japanese politics and trade policies. They want to protect the near monopoly they have on rice and other products. The routinely denigrate the rice we produce in the US as unfit for Japanese consumers. Funny how the Japanese consumer bought it in droves when the Japanese were forced to import California rice after a bad harvest.
This is not about us exporting cars to Japan, but using our leverage on the import of their vehicles, which is a huge trade imbalance and to force the Japanese to open their markets for our other products. This is why it needs to be direct talks and not a regional one.
5
There's a lot of truth in that point, Mike. But Abe is in a bit of a bind with rice. Many Japanese are part-time rice farmers using a few acres of land to supplement their annual income. Most of these people live in the districts he needs to hold in order to stay in office. it would be better for everyone if the rice subsidies were dropped but it might cost Abe and his party their leadership position. This situation is unlikely to change.
2
Aaron,
That is indeed true. It seems like nearly everyone over there with a a bit of land grows rice to take advantage of the Japanese government program which guarantees them buyer at a fixed price. It would be like if the majority American suburban yards had a section reserved to grows rows corn and/or potato mounds. And the land bankers of empty lots in the our cities likewise were filled with corn and/or potatoes.
1
"...give them something which doesn’t really hurt Japanese interests, but is something that the U.S. president can say was a big concession,”
A well-known strategy for dealing with infantile narcissists.
21
Japan's capitulation to Trump-Pence is poorly considered. First, the regions Japanese vehicles predominate are finding loyalty to these products based upon quality. Next, IF a tariff on Japanese vehicles were to be applied, American manufacturers would seize upon the event as a time to increase prices (American appliance manufacturers have already done this, as have steel manufacturers), thereby re-establishing a level market. Lastly, Japan's capitulation serves only to reinforce T-P's atrocious mercantile behaviors. . .Japan can expect more demands.
1
@Jim
This is a completely bogus argument. Japanese and American automakers know that they cannot afford to raise prices for their cars sold in the U.S., since consumers will just buy more Korean brands like Genesis, Hyundai and Kia. These Korean brands are already selling models in the U.S. which have better styling and are ranked higher in quality by J.D.Power and Consumer Reports - and at lower prices than Japanese brands. It would be suicidal for American and Japanese brands to try to pass on the cost of tariffs to American consumers in the form of higher prices.
Trump's tariffs will simply force Japanese brands to start building more cars in the U.S., as well as, to use more American made parts in cars which they assemble in the U.S. This has been Trump's objective all along. As it stands right now, most Japanese cars assembled at Japanese plants in America have very little in way of local content, since most of the important parts like transmissions are made in Japan. This is clear by looking at the Kogod Made in America Index, since Japanese brands perform very poorly in this index. Simply assembling cars in America from made in Japan parts is not enough and it does not address the huge U.S. trade deficit with Japan. Imposing a 25 percent tariff on imports of Japanese cars and Japanese auto parts into the U.S. is the only way to go.
2
@Steve Jackman
The American University Kogod Index you cite is a joke, and most industry analysts treat it as such. The value is calculated based on speculated costs and guesses on how much of the work that goes into vehicle design and product development occurs in the U.S.
You claim most Japanese production plants in the U.S. merely assemble parts made in Japan. I've visited Toyota's engine plant in Huntsville, Alabama. 1,100 employees there build engines using parts made there or close by. They have two other engine plants in West Virginia and Kentucky. They build (not assemble) vehicles in Indiana, Texas, Kentucky and Mississippi. American workers at those plants would be insulted by your uniformed allegations.
I had dinner the other night with a Honda executive. I asked how much impact there would be if Trump imposed threatened 25% tariffs on vehicle imports and parts. He said very little because over 95% of the vehicles, together with a substantial portion of the parts including the drivetrain), they sell here are made in the U.S.
That GM, Ford and Chrysler are opposed to import tariffs on vehicles and vehicle parts should remind us that we live in a world based on global supply chains with work and parts sourced from all over the world. Trump may want to turn the clock back to the 1950s, but his policies will only hurt American workers, consumers and companies.
If Trump's goal is to get the rest of the world eating the American diet, produced by Big Ag, heaven help them. Japan, grow local, eat local, live longer.
11
Sonny Purdue lied about the Canadian Dairy farmers. Everything he said Canadian farmers did were actually what the US does to Canada. How can we believe anything about agriculuture from Trump's team?
According to Perdue, Class 7 gives Canada an unfair advantage in global sales of milk solids. He and many U.S. dairy groups say the pricing structure allows our neighbors to the north to “dump” their excess milk on the world market. In fact, Mike North of Commodity Risk Management said, that’s the reason we’re in this trade pickle with Canada anyway.
https://www.dairyherd.com/article/secretary-perdue-says-canada-must-give...
4
If I were the Japanese, I would gladly agree to open the market to American cars because no one will want to buy them anyway!!
21
They know how to produce cars and their parts here. Toyota does it well, they can produce more here and perhaps in Mexico as well. Perhaps if we get some individual deals they can be expanded to get more in later.
1
The Japanese have been historically bad on opening up their markets. A classic examples was banning foreign skis claiming Japanese snow is different. Most of this happens in the giant bureaucracy despite promises from the top to open markets.
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@Todd I think they are also sensitive about maintaining domestic production as a value in itself, even at some economic cost. As an island nation with limited natural resources, they don't want everything out-sourced. It makes some sense. But I hadn't heard about the skis in particular.
1
@Todd If you lived on a couple of small islands with no farmland and no natural resources you'd very likely feel the same way.
2
@Jim The problem is having that attitude while at the same time setting up your economy as an exporting machine leads to angry trading partners. Trump got a lot of votes claiming that America is often on the wrong side of global trade. And Japan needs to decide what domestic sacred cows to give up so as to keep sending 1.7 million cars a year to the US