US, Japan focus on trade to boost both economies

With the economy an increasing concern, Obama and Abe discuss an Asia-Pacific free-trade agreement that would benefit both nations

PUBLISHED : Sunday, 24 February, 2013, 12:00am
UPDATED : Sunday, 24 February, 2013, 5:34am

For the last two decades, Japan's stagnant economy has taken a back seat to China's explosive growth. But the economic agenda for the United States and Japan is heating up, presenting new opportunities for the US and trade frictions reminiscent of the 1980s.

In White House discussions on Friday, US President Barack Obama and Japanese Prime Minister Shinzo Abe took up a range of security concerns. But their minds were largely focused on one thing: getting their economies growing more rapidly.

Obama would like to see Japan join the US, Canada, Mexico, Australia and seven other countries in negotiations for an Asia-Pacific free-trade agreement. The administration sees the pact as a vital part of its "pivot to Asia" to secure US strength in an increasingly wealthy region of the world, where China's influence has grown.

But the US car sector and Japanese farmers, important constituents for Obama and Abe, have balked at Japan entering talks that could expose their industries to greater foreign competition.

On Friday, the US and Japan issued a carefully worded statement suggesting that although all goods would be on the table in the trade talks should Japan join, there could still be a deal in which each side protected its most sensitive sectors.

"The two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations," the statement said, referring to the Trans-Pacific Partnership.

For Abe, his meetings in Washington were aimed at promoting his own economic programme. The Japanese have dubbed his plan "Abenomics" - an effort to break out of a devastating deflationary period with fiscal and monetary stimulus and other efforts.

Abe, 58, said he hoped Japan could decide quickly about entering the talks.

Obama welcomed Abe's overall message of strengthening bilateral ties, saying that they agreed their No1 priority had to be "making sure that we are increasing growth and making sure that people have the opportunity to prosper if they're willing to work hard, in both countries".

Trade was not a top priority in Obama's first term, but in his State of the Union address, he pledged to pursue free-trade talks with Europe and the Asia-Pacific region.

Neither is likely to be completed this year, but given Washington's budget constraints and partisan gridlock, one of Obama's best options to boost growth and jobs may be by expanding trade.

"Asia is an economic dynamo, and the administration very much wants to be in the region," said Mireya Solis, a senior fellow at the Brookings Centre for Northeast Asian Policy Studies. "At a time of limited resources, it's difficult to fund the rebalancing [to Asia], so the value of alliances increases."

That is where Japan comes in.

Promoters of the Trans-Pacific Partnership see it as more than a pact that removes tariffs: It's a comprehensive deal that also addresses regionwide issues involving regulations, supply chains and state-owned firms.

As the world's third-largest economy, Japan's participation would give the trade alliance greater significance and also could draw economic powerhouse South Korea into the talks.

Japan also stands to gain by joining the trade partnership, analysts say, as it likely would push along deregulation and other much-needed structural changes in the Japanese economy to improve productivity amid a rapidly shrinking and ageing population. That would help sustain Japan's growth when the effects of fiscal and monetary stimulus fade.

Many Japanese experts say Abe personally would like to take part in the trade talks, but Abe would be loath to make any public moves until at least July, when his rural-based Liberal Democratic Party faces an election for the upper house of parliament.

Abe's overarching goal is to win the summer election so he can carry out his agenda.