As the world’s third-largest economy, Japan is the fourth-largest U.S. trade partner, fourth-largest U.S. investment partner, and largest foreign holder of U.S. government debt. An economic powerhouse, Japan has enjoyed a healthy, bilateral trade relationship with the U.S. Now, thanks to a new trade agreement, those bonds may strengthen even further.
By the Numbers
According to the Office of the U.S. Trade Representative (USTR), U.S. goods and services trade with Japan totaled an estimated $297.6 billion in 2018. Exports were $120.4 billion, imports were $177.2 billion, and the U.S. goods and services trade deficit with Japan was $56.7 billion.
With $217.7 billion in total (two-way) goods traded during 2018, goods exports between the countries totaled $75.2 billion while goods imported totaled $142.4 billion. Trade in services with Japan (both exports and imports) totaled an estimated $79.9 billion in 2018. In 2018, services exports were $45.2 billion, services imports were $34.7 billion, and the U.S. services trade surplus with Japan was $10.5 billion.
The top export categories for U.S. goods going to Japan include mineral fuels; machinery; optical and medical instruments; aircraft; and electrical machinery. Other major domestic export categories included corn; beef and beef products; pork and pork products; soybeans; and wheat.
With $142.4 billion in U.S. goods imported from Japan in 2018 (up 4.4% over 2017), the top import categories included vehicles; machinery; electrical machinery; optical and medical instruments; and aircraft. Exports to Japan supported 323,000 American jobs as of 2015, according to the International Trade Administration.
New Opportunities Ahead
In September 2019, U.S. President Trump and Japan Prime Minister Abe finalized a limited bilateral trade agreement consisting of tariff cuts on agricultural and industrial goods and commitments on digital trade. The two sides stated their intent to begin negotiations on a more comprehensive deal after this initial agreement enters into force.
According to the Associated Press, the deal will pave the way for cheaper American beef and other agricultural products in Japan. “When the trade deal was reached in September, Trump said it means opening Japan’s market to about $7 billion in U.S. farm goods, with tariffs lowered or scrapped on American beef, pork, wheat, cheese, corn, and wine,” AP reports.
Japan Times says that the recently signed deal focuses on tariff cuts on goods like agricultural and industrial products, while sidestepping areas like automotive tariffs. Under the pact, Japan will open its beef and pork markets for U.S. produce at levels on par with those it promised under the Trans-Pacific Partnership multilateral free trade agreement.
U.S. industry groups and farmers have said the new deal is insufficient and have called for a more comprehensive trade accord covering more goods and services. This year, the U.S. and Japan will enter negotiations on a broader trade agreement.
“Tokyo and Washington have agreed to launch discussions on the scope of negotiations for the potential second trade deal within four months of the first deal going into effect,” the publication reports. “Japan hopes to include unresolved issues, such as possible elimination of U.S. tariffs on Japanese automobiles and auto parts, in the agenda for the upcoming negotiations.”
Enhanced Market Access
In assessing the new trade agreement, EY says it focuses on enhanced market access for U.S. agriculture products. Previously, $5.2 billion of the $14.1 billion of U.S. food and agricultural products imported by Japan were duty-free. The agreement will reduce or eliminate tariffs on an additional $7.2 billion worth of US agricultural products. Overall, more than 90% of US food and agricultural imports into Japan will either be duty free or receive preferential tariff access.
“This is just a first step toward what we hope will eventually be a comprehensive, platinum-standard trade agreement with Japan. America’s most competitive industries depend on clear trade rules, dispute settlement mechanisms, and good regulatory practices to compete on a global scale,” the U.S. Chamber of Commerce concludes. “Such an agreement would address the full range of U.S. trade priorities from services and intellectual property protection to regulatory barriers to trade.”