US-Japan mini trade deal shows Trump is running out of time | Business| Economy and finance news from a German perspective | DW | 26.09.2019
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US-Japan mini trade deal shows Trump is running out of time

The "minideal" is a rare compromise by the US president, who has displayed a penchant for launching trade wars in pursuit of comprehensive trade deals. What's prompting Donald Trump to back down from his hawkish stance?

The Trump administration has announced a new trade agreement with Japan during a meeting between President Donald Trump and Japanese Prime Minister Shinzo Abe in New York.

The trade deal is limited in nature and cuts tariffs on US farm goods, Japanese machine tools and other products. It leaves out the more contentious issues such as US tariffs on Japanese cars for future talks.

The "minideal" is a rare compromise by Trump, who has been raising stakes in an ongoing trade war with China to ensure Beijing agrees to a comprehensive trade deal covering a broad spectrum of issues ranging from intellectual property protection to national security.

The trade deal with Tokyo could set the ball rolling for similar limited agreements. Trump's officials are also discussing a diluted trade deal with India that's likely to leave out many of the contentious issues. The agreement, which was expected to be signed during a meeting between Trump and Indian Prime Minister Narendra Modi on Tuesday, has hit a snag after New Delhi is said to have expressed reservations on some of US demands, including scraping tariffs on information and communication technology goods.

"I think he (Trump) is discovering that dealing with leaders of other countries is different from dealing with other real estate developers," Bill Reinsch, an international business expert at the Washington DC-based Center for Strategic and International Studies, told DW. "National leaders have their own cultures and rules and their own domestic politics that are more important than a good relationship with the US president," he said referring to the supposed close rapport Trump shares with Modi and Japanese Prime Minister Shinzo Abe.

Read moreIndia-US trade tensions threaten the ties that bind

Electoral calculation

Trump's climbdown comes at a time the US economy is beginning to feel the pains of his aggressive trade policies, particularly against China — the world's manufacturing hub. The US-China trade war that has seen the two sides slap punitive tariffs on billions of dollars' worth of goods has sparked recession fears globally, including in the US.

Last week, the US Federal Reserve cut its key interest rate for the second time in seven weeks and left the door open to additional cuts, citing rising uncertainty emanating from the trade dispute.

"Trump is running out of patience. It's clear that the US economy is weakening, and this is coinciding with the run up to the 2020 election cycle," Maurice Schweitzer, a Wharton School professor specializing on the negotiation process, told DW. "He's concerned about his legacy and his reelection prospects…and he would like to take credit for some trade deals."

Of particular concern to Trump are the US farmers — a key voter base — who have been stung by their leader's trade wars that have cost them sales in key markets such as China. It's not surprising, therefore, that the trade deal with Japan involves greater access for US agricultural products. It's no different with the India deal that's being negotiated.

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Trade war making life hard for USA's ginseng farmers

A climbdown

The US president has been banking on his tough trade policies, especially against China, to pander to his support base, which swears by Trump's narrative that the US has been wronged by its trading partners for decades. During his campaign for the White House, Trump had promised to negotiate comprehensive bilateral trade deals to correct those wrongs. But how are his supporters going to react to his watered-down deals?

"I suspect Trump will try to sell whatever deals he is able to achieve as historic victories, even if they represent only modest changes over the status quo," Geoffrey Gertz from Washington-based Brookings Institution, told DW. "Given that most voters only pay very minimal attention to the intricacies of trade negotiations, I suspect this strategy may be successful for some voters, though of course Democrats will seek to advance a counter narrative."

Gertz cites the case of NAFTA — North American Free Trade Agreement — which was rechristened last year as USMCA — United States-Mexico-Canada Agreement — with only a few updates. Trump characteristically described the rewritten deal as "the most important, and largest, trade deal in US and world history."

The USMCA is yet to go into effect with the Trump administration struggling to persuade the House Democrats to back the deal. In fact, experts say the fate of the USMCA is another reason that may have prompted Trump to opt for mini deals, which do not necessarily need to be ratified by the Congress.

Answer to US-China trade war

Trump administration officials have been debating a limited trade deal with China to ease trade tensions between the world's two largest economies and arrest the economic slowdown, Bloomberg reported earlier this month.

The interim deal would delay and even remove some US tariffs in exchange for commitments from Beijing on intellectual property and agricultural purchases, Bloomberg said. But it would not cover the more contentious issues such as state subsidies and excessive role of the state in the economy.

While a "mini deal" with China is likely to be cheered by the American farmers, it could irk many in the business community who have been demanding Beijing to make structural changes to ensure a level playing field.

"American companies want market access and fair treatment issues resolved,period," Doug Barry from the US-China Business Council told DW. "While it may make sense to unravel the daunting number of issues and deal with them on separate tracks, companies want assurances they will be addressed."

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