Japan Faces New Challenges Following the U.S. Withdrawal from TPP

Japanese Prime Minister Shinzo Abe now faces a difficult situation as U.S. President-elect Donald Trump vows to pull the largest economy in the world out of the Trans-Pacific Partnership (TPP).

The TPP is the largest regional trade deal in history, in negotiation since 2006. The trade pact reduces or removes most tariffs, setting new standards on issues such as employment practices, environmental protection, intellectual property, and introducing new mechanisms for dispute settlement. Japan and the U.S. make up the two largest economies of the 12 participating countries in the negotiation of the deal.

A staunch supporter of the TPP, Abe planned to stimulate the stagnating Japanese economy with the trade deal. In fact, Japan’s parliament even ratified TPP on November 4. The election of Donald Trump, nevertheless, complicates the original plan because Japan could potentially leverage the TPP to obtain favorable terms when negotiating other deals with neighboring countries, such as the Regional Comprehensive Economic Partnership (RCEP) led by China.

If the US indeed withdraws from the trade deal, Abe will face limited options. He will have to propose a bilateral trade deal between Japan and the U.S. and shift his focus to the RCEP.

Even a bilateral agreement, however, will prove extremely difficult to ratify due to opposition from the Japanese agriculture sector. Japanese agriculture operates under extensive trade protections. Imported rice products, for example, are subject to an 800 percent tariff. According to the United States Trade Representative, U.S. exports of agricultural goods totaled $12.1 billion in 2013, higher than any other export categories. Cutting tariffs and removing protectionist measures from the Japanese agricultural products will be a top priority for the U.S. if both parties decide to negotiate a bilateral trade deal. Given the strong lobbying power of the agricultural sector, it seems highly unlikely that any meaningful progress can be made with a new bilateral trade deal.

Meanwhile, the Japanese prime minister will inevitably put more emphasis on the negotiation of RCEP, which involves ten countries in Asia and Oceania. While it helps integrate economies in the region to some extent, it may not have the same far-reaching effects as the TPP would, especially on issues that conventional trade deals do not cover. Furthermore, the US withdrawal from TPP will put Japan at a disadvantage on the negotiating table. Other parties understand that without the TPP, the RCEP is the only trade deal Japan can count on. As a result, there will be fewer compromises in Japan’s favor.

For Abe, the failure of TPP might just be the first in a series. If President-elect Trump’s previous remarks on Asia prove credible, the U.S. will probably gradually pull itself out from Asia politically, as well. At that moment, Japan will certainly face more aggression from neighboring countries.