REPEAT: MNI EXCLUSIVE: Japan Calm on US Trade Row

Repeats Story Initially Transmitted at 11:16 GMT Jun 8/07:16 EST Jun 8

By Max Sato

     TOKYO (MNI) - Japan is staying out of a tit-for-tat trade war with the

U.S., its key military and economic ally, hoping to bring Washington back into

multilateral trade talks and weather the storm until the U.S. mid-term elections

in November.

     Economists expect U.S. disputes with its major trading partners to have

only a limited long-term impact on global and Japanese economic growth, although

they fear a short-term drag on corporate earnings and stock prices if the Trump

administration jacks up tariffs on imported cars.

     "Japan's restrained response without imposing retaliatory import duties is

helping keep trade frictions from escalating, which I think is a good policy

decision, but going forward, it may not be able to keep the calm response," said

Junji Nakagawa, professor of international economic law at the University of

Tokyo's Institute of Social Science.

     "The Republican Party is formulating policies to win the November

elections," he said. "It is a wrong economic theory to say GDP and employment

will grow if the trade deficit is reduced, but it has been accepted by the core

supporters of Trump -- white working-class voters who have seen the products

they make lose competitiveness to those from Japan and China in a globalized

economy in the past two to three decades."

     --BILATERALS

     Bilateral debate is expected to heat up as Japan and the U.S. begin

ministerial talks later this month toward "free, fair and reciprocal" trade.

Washington has been trying to drag Tokyo into a bilateral trade accord while the

latter is seeking to remain in a broader framework under the Trans-Pacific

Partnership free trade agreement, from which the U.S. has withdrawn.

     In addition, the U.S. Commerce Department is investigating whether imports

of cars and trucks are hurting the U.S. auto industry, a move that could raise

the tariffs on imported vehicles to 25% from 2.5%. Japan does not impose duties

on imported vehicles.

     Diplomatically, Tokyo has asked Washington to exempt Japan from the high

steel and aluminum tariffs imposed in March, arguing that Japan is an ally and

thus does not pose a national security threat to the U.S.

     But in reality, Japanese metal makers are not suffering greatly as U.S.

industries need specialized high-quality metal products that only Japanese firms

can provide.

     Then came the announcement from Washington last month that President Donald

Trump asked the Commerce Department to probe into the possibility that

automobile imports are threatening U.S. national security. In nine months from

May 23, the department will report its conclusions to the president.

     --NATIONAL SECURITY THREAT

     The provisions of a 1962 trade law, known as Section 232, allow the

president to restrict imports that threaten "to impair the national security."

     Nakagawa expects the Trump administration to keep its tough stance on car

imports until the November elections but he noted the situation is not so

simple.

     "The higher auto tariffs are targeted at Japan, Germany and South Korea,

but U.S. carmakers also produce in Mexico and Canada, so they cannot accept

higher import duties, either," he said.

     The European Union imposes a 10% duty on imported U.S. automobiles, while

the U.S. levies duties of 2.5% on most imported cars and 25% on most pickups.

     "The U.S. auto industry does not want the government to lower the 25%

tariffs on pickups, which are a profitable line of models. Trump's threat of

imposing higher car tariffs is a smoke screen," Nakagawa said, adding that the

U.S. is trying to delay the abolition of the high tariffs on pickup trucks in

talks with South Korea aimed at reviewing their free trade agreement.

     MORE

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com