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When you stand still on trade, you fall behind. Nowhere is this more apparent for the United States than in Japan, the world's third largest economy and long a top market for U.S. exports. It's also why the U.S. just launched negotiations for a trade agreement with Japan.
Like many other countries in the Indo-Pacific region, Japan has been striking new trade deals and tearing down barriers to global commerce. It's imperative that we act quickly so that our workers, farmers, and companies are not stuck on the outside, looking in.
The Trans-Pacific Partnership (TPP) is a case in point. The U.S. led the way in negotiating this 12-country trade pact, but when Washington withdrew in 2017, Japan and the other participating countries chose to implement it without us. The TPP finally entered into force last December.
Thanks to the agreement's tariff cuts, Japan imported 60% more beef from Canada, Australia, and other TPP countries in January than it did the previous year. And since a new EU-Japan trade pact entered into force in February, European farmers and manufacturers are also benefiting from tariff cuts in Japan.
However, the rising tide of trade between Japan and its new trade agreement partners has meant lost sales for Americans. U.S. pork exports to Japan, the top export destination, have dropped by 35% so far this year. U.S. wheat and barley sales to Japan are also suffering. The trend extends to manufactured goods as well.
In response, the U.S. is poised to launch negotiations with Japan for a bilateral trade pact. This is good news, and the Chamber strongly supports this move.
U.S.-Japan trade topped $300 billion last year, and Japanese firms, which have invested nearly $500 billion dollars in the U.S., employ nearly 1 million Americans.
However, the logic behind a trade deal with Japan goes beyond the size of the market or the mounting tariff disadvantage faced by American farmers and manufacturers. Japan boasts a capital-rich, technologically sophisticated economy, and Japanese companies share many of the concerns of U.S. firms about the challenges of global trade, innovation, and digitalization.
Given these shared concerns, the U.S.-Japan trade negotiations represent a chance for our countries to write the rules of global trade in the 21st century. Take business services, which today employ 50% more Americans than manufacturing. The Internet is making more of these services tradeable every day, and with the right trade rules, the U.S. and Japan can reap substantial benefits.
Negotiators can also build on the recently completed U.S.-Mexico-Canada Agreement, which raised the bar for global trade rules. To illustrate, when NAFTA was negotiated a quarter century ago, there was no e-commerce, so it's no surprise the agreement did not address this booming sector. Here, USMCA's digital trade chapter sets a new, high standard, and the agreement establishes a framework for cooperation against cyber threats.
Similarly, USMCA modernizes protection for intellectual property. The cutting-edge medicines known as biologics are a case in point—the old NAFTA did not protect them for the simple reason that they had not yet been invented.
In addition, USMCA includes strong rules blocking "behind the border" barriers against U.S. exports. All too often, foreign governments deploy regulations or standards in an arbitrary way to block imports. USMCA prohibits this kind of protectionism in disguise.
It's also worth underscoring what a new agreement between the U.S. and Japan should not include. Both sides must reject so-called "voluntary export restraints" and "orderly marketing agreements," which are just fancy names for managed trade. Our countries are champions of free enterprise and free markets, not the socialist mindset that believes government bureaucrats should steer the economy.
We must also end the U.S. tariffs on steel and aluminum from Japan and the threat of tariffs on autos and auto parts. These "Section 232" tariffs are based on a determination that these imports threaten U.S. national security—which the Japanese understandably reject.
In fact, since World War II, the U.S. and Japan have become increasingly close allies, and we share a strong commitment to democracy, peace, and stability. Building on that foundation with a trade agreement—as the U.S. has already done with other Asian allies—is critical to managing the challenges of tomorrow.
We can't allow ourselves to fall behind on trade. Working with partners such as Japan, we need to tear down trade barriers—not erect new ones. We need to write the rules of global trade, or they will be written for us in ways that won't favor U.S. jobs. For all these reasons, the time is now for a U.S.-Japan trade agreement.
Commentary by Tom Donohue, president and CEO of the US Chamber of Commerce.
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