Washington and Tokyo Are Messing Up a Vital Trade Pact

By Paul J. Leaf

October 28, 2014

Measured by geography alone, the Trans-Pacific Partnership is ambitious: The pact would bind the United States, Australia, Japan, Singapore, Vietnam, and seven other countries in a free trade agreement.

As with most such arrangements, signatories hope the deal will boost trade and investment, create jobs, and harmonize regulations. The Partnership is about more than trade, though - the TPP would act as a key economic and strategic bulwark for America's Pacific alliances. Given its importance, Washington and Tokyo have made bold pledges to conclude the deal. China is watching: Beijing views the agreement as a test of the American-led security order in the Pacific.

Unfortunately, narrow but powerful interest groups in the United States and Japan that benefit from existing protectionist measures have stalled negotiations once again. This continued gridlock is dangerous, and negotiators must find a way to overcome it and quickly finalize the pact.

The Partnership promises considerable economic gains. Its potential signatories account for some 40 percent of global output and more than 33 percent of world trade. Within 11 years, the pact is projected to create an annual $440.4 billion in additional exports (including $123.5 billion in U.S. exports and $139.7 billion in Japanese exports) and $285 billion in global income gains ($76.6 billion for the U.S. and $104.6 billion for Japan). This number will grow if countries such as India, South Korea, and Taiwan join the TPP in subsequent rounds.

The strategic benefits of the Trans-Pacific Partnership

Finalizing the pact will affirm U.S. staying power in Asia at a time when America's military leadership in the region is undermined by its shrinking defense budget, conflict-weary voters, and involvement in turmoil in other parts of the world. Economic integration among the pact's signatories should also increase their diplomatic and military cooperation. Moreover, by creating an enormous free trade zone that competes with the Chinese market, the Trans-Pacific Partnership will ease its members' reliance on Beijing and grant them a freer hand to resist China. Finally, economic growth means that TPP members will have more resources to fund their military budgets - nearly all of these countries lag significantly behind Chinese defense spending.

The pact promises to provide non-military means to surround China by strengthening its neighbors while also drawing them closer to the United States and Japan. Yet the pact has stalled, and failures in Tokyo and Washington to overcome domestic political interests are largely to blame. Take two examples:

In January, U.S. President Barack Obama asked Congress for an expedited vote on the TPP. Such fast-track authority, which would bar deal amendments, was necessary to end the lengthy back-and-forth that ensues each time a change to the pact is requested. After all, other countries negotiating the agreement would not make concessions unless their counterparts did the same and they were confident that Congress would ratify the pact in the agreed-upon form. A major concern was that congressional members beholden to labor unions, if given the opportunity to re-write the TPP, would not accept Tokyo's call for Washington to cut its tariffs on Japanese cars. Nevertheless, to please unions in the run-up to November's congressional elections, Senate Majority Leader Harry Reid denied Obama's request, and Obama did not push back. With this political divide revealed, U.S. and Japanese leaders predictably failed to resolve their differences during Obama's April trip to Asia - a trip meant to reassure regional allies that they had Washington's backing against an increasingly aggressive China. 

Last month, just one hour into what was to be a daylong meeting on the TPP, Japan's top negotiator reportedly walked out over Washington's request that Tokyo curtail its agricultural protectionism. Japan offered only a "modest reduction" in tariffs on beef imports and demanded a "highly punishing safeguard measure" that would allow Tokyo to increase those tariffs if beef imports surpassed a specific threshold. Having long benefited from substantial tariffs on foreign agricultural products, Japanese farmers strongly oppose free trade. Consider the following Japanese tariffs: 778 percent on rice, 360 percent on butter, and 252 percent on wheat. As Michael Auslin writes, "[t]he political imperative for [such tariffs] is obvious even if the economics are bad. Japan's postwar electoral system gives great weight to rural areas. No group has benefited more from the agriculture lobby's support than [Japan's ruling party]."

Time is running short

Continued gridlock in negotiations on the Trans-Pacific Partnership will signal to China that the American-led security order in Asia is not durable. Like all free trade agreements, the TPP will hurt parts of its signatories' economies, but the economic benefits alone make the deal a net gain for those countries. From Beijing's standpoint, if Washington and Tokyo cannot stand up to lobbyists and enact such a favorable deal, those countries are even less likely to take costlier steps that might be needed to counter Chinese hostility. Will the United States raise taxes or cut entitlement spending in order to maintain a military strong enough to deter aggression in multiple theaters? Will Japan seek rapprochement with South Korea regarding wartime atrocities - an extraordinarily delicate political issue? Given American citizens' war fatigue, widespread Japanese pacifism, and China's growing military prowess and importance as a trade partner, will Washington and Tokyo defend smaller countries being bullied by Beijing in the South China Sea? 

The United States and Japan have difficult decisions to make as they try to maintain peace in Asia. But concluding the Trans-Pacific Partnership as soon as possible should not be one of them. U.S. congressional elections in November make TPP finalization unlikely until 2015. Washington and Tokyo must then conclude the deal - before political pressure sets in from America's presidential and Japan's prime ministerial elections in 2016. Anything less will signal that the United States and Japan value parochial trade interests above shared, vital defense interests. That message will embolden China.

Paul J. Leaf worked on defense issues for a think tank. He is a regular commentator on U.S. foreign policy and an attorney at an international law firm.