Security puts a hold on the economy : In an era when common sense of rules changes
The dramatic progress of the digital economy, the trade war between the United States and China that shakes the global supply chain, and the storm of national priority by unconventional political leaders. How will the new composition of the world that suddenly emerged change the economy? In this new column, I will try to read and describe the cutting edge of the ever-changing global economy while deepening interaction with politics and security.
The trade agreement agreed to by Prime Minister Shinzo Abe and US President Trump in late September symbolized a new pattern of Japan-US relations.
Meaning of the Japan-US agreement
Prime Minister Shinzo Abe claimed the new Japan-US agreement “Win-win for both Japan and the US.” In Japan, there are opinions that the content was reasonable. This may be the case for bilateral trade between Japan and the US, but there are two points that should be considered a little more broadly.
The first is that Japan has responded to the reduction in tariffs on agricultural products, in the form of soothing the US side, which flickers additional tariffs on automobiles. The threat of additional tariffs on automobiles was unilaterally taken out by Trump administration, and if it was decided, there was a strong suspicion that it would violate the WTO. This means Japan effectively accepts tariff measures that cannot be negotiated as a transaction material and gives a reward.
Consistency with the WTO
The second is also about cars. Japan and US have virtually postponed the abolishment of import duties on automobiles and auto parts once US government promised in the Trans-Pacific Strategic Economic Partnership Agreement (TPP) negotiations during the Obama administration era, making it a future negotiation issue without a deadline. Although the final goal is abolition, it is not possible to know when it will happen.
When bilateral and regional trade liberalization agreements are signed, the WTO calls for the removal of “substantially all the trade” tariffs. ” Substantially all ” is understood to mean 90% or more. According to the agreement between Japan and the United States, the US side will abolish tariffs of about 92% and the Japanese side about 84%. Without it, the tariff elimination rate on the US side will drop significantly, so at least if the timing of the elimination is not specified, it may be asked for consistency with the WTO. Even if it is relieved that Japan and the United States have led a decent agreement by raising the other sides’ face, it may seem from the outside that they ran ahead of the bilateral situation with the rules of the WTO.
National security is a hidden keyword
It should be noted that national security is a hidden keyword of this agreement between Japan and the US. This also has two aspects.
First of all, where did the additional tariffs on the car, which the Japanese side explained winning the postponement, come from in the first place? The US has a domestic law called Section 232 of the Trade Expansion Act of 1962, which permits the country to impose import tariffs for national security reasons, and based on this, it has already imposed additional tariffs on foreign products for steel and aluminum. It was also for national security reasons that Trump administration warned that tariffs could be raised for cars and car parts.
Why are cars related to security? There must be a lot of people feel suspicious. In fact, the WTO Agreement also has a provision to the effect that trade can be restricted if there is a valid security reason. The definition is not necessarily clear, but it is common sense to assume that if a unilateral tariff is imposed on ordinary vehicles that are not for military purposes, the WTO will make decision against it as mentioned earlier. If each country abuse trade restrictions for security reasons with a unique interpretation, the global trade order will be confused.
The Trump administration nevertheless shakes up the interpretation that is convenient for the country. Although it is seemed to be used as a bargaining chip, this government uses what seems to be available. If you bring security in this way, the impact on the economy will be enormous. If Mr.Trump is re-elected in the 2020 presidential election, it should be considered that the second season repeats the same trick.
Bilateral relationship and multilateralism
This Japan-US agreement also demonstrated more essential aspects of national security of Japan. In addition to dealing with North Korea’s nuclear and missile issues, the importance of a close Japan-US alliance is increasing when considering the existence of China, which is becoming more military powerful and more influential in Asia. Whether or not your partner is a Trump administration, this will be unchanged.
We don’t know to what extent Mr. Trump understands Japan’s geopolitical importance in Asia. What may occupy in his head might be just to have Japan buy more US products or ask them to pay more for US military in Japan. It goes without saying that it is important to firmly connect the United States to the framework of the alliance.
Under such circumstances, this agreement between the two countries has show that Japan, which emphasizes multilateralism by the WTO and TPP, has a high priority for bilateral relations with the United States. The keyword here is also national security.
Battle for technological supremacy
Of course, that doesn’t mean that a multilateral approach can be left perfunctorily. Japan’s leadership in realizing TPP11 without the US is highly regarded overseas. Japan will be urgently asked how to balance the two basic policies of emphasis on relations with the United States and multilateralism.
The composition in which security affects economic activity is clear also in the conflict of the United States and China where the exit is not visible. Trump administration has moved to eliminate Chinese companies such as Huawei Technologies because of security concerns. It should not be seen only as a matter of individual technology management. Countries that take the lead in technology also gain an advantage in military power. The US is desperate to secure technological supremacy because it is not only a matter of economic competition but also directly related to national security.
The area in which security put a hold on or interferes with economic activity has increased, and it has entered an era that changes the common sense of rules. If you do not think about how it will respond as a country or a company, you may be involved in an unexpected flow.