The Trans-Pacific Partnership: An Economic Victory for both the United States and Japan

After five years of negotiation, the Trans-Pacific Partnership (TPP) has been concluded, 2,000 pages of dense and ambitious agreements between twelve countries around the Pacific Ocean: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States (US), and Vietnam. At its core, the TPP is meant to foster the relations between the countries through tariff reduction, encouraging more fluid trade and increased economic interaction. The TPP will define pacific relationships and global economics, since the involved countries total 40% of the global economy, according to The Diplomat.

Although the TPP is hotly contested, one immensely significant positive attribute emerges: it fosters the ever-growing ties between two key Pacific countries, the US and Japan, and is economically beneficial to both states. The American and Japanese leaders agree on this. President Obama, who has spent years highlighting the strengths of the TPP, articulated after the final talks in Atlanta in October, “It strengthens our strategic relationship with our partners and allies in a region that will be vital to the 21st century.” Japanese Prime Minister Abe also believes in the agreement’s power to unify “countries that share the basic values of freedom, democracy, basic human rights and the rule of law.”

The most publicized – and controversial – proposals between the US and Japan are the US-Japan Motor Vehicle Trade Non-Tariff Measures. These articles lower and eventually eliminate the 2.5% tariff on Japanese cars being imported into the US. While the figure seems small, it is a huge incentive for the Japanese automotive industry to work for a bigger market share in the US. This measure goes hand-in-hand with a second measure, which lowers the percentage of how much of a car is manufactured locally. Under the TPP, the “rule of origin” clause states that only 45% of the vehicle needs to be manufactured in the TPP zone, meaning Japan can assemble more than 50% of its automobiles in one or more non-TPP adhering countries, namely China. By being able to both outsource more of its automobile parts and have more access to the US market, Japanese automakers are in a phenomenal position.

At face value, these aspects of the TPP are undeniably beneficial, but primarily on the Japanese side. They have the potential to bolster the Japanese economy, diversify the US automotive market and strengthen economic ties between the US and Japan. If the agreement had stopped at these measures, the US would have had reason to oppose it: US automotive producers would be severely undercut by cheaper Japanese cars. Additionally, Japanese markets would still exclude foreign competition, which has always been a concern in the American automotive industry. A great number of restrictive loopholes have historically shut out US companies. As expresses by The American Automotive Policy Council, “By anyone’s common sense standard – whether an economist, policymaker, marketing specialist, consumer or layman, this [Japan’s automotive market] is not evidence of an open market, but a rigged market.”

Yet separate facets of the agreement beyond the reductions in tariffs and percentages of local production must be considered. For instance, the TPP outlines a new provision of transparency regarding Japan’s regulatory restrictions on automotive imports. Over time, this will allow foreigners to better access Japan’s market. The transparent regulatory committee will work to involve any “interested persons,” which means more involvement for US automakers. Furthermore, Japan has agreed under the TPP to adopt certain US motor vehicle standards, which will negate some of the previous high costs for US automakers operating in Japan.

Concerning only the reduction of tariffs and the “rule of origin” clauses, Japan clearly comes out on top, but taken as a whole, the TPP has a number of benefits to offer the US. The agreements outlined about transparency and less restrictive regulations will work to better involve US automotive industries. This will hopefully allow American automakers to expand their consumer base and have a bigger say in the regulations that define their business paradigms abroad. Moreover, competition may be healthy for the domestic carmakers in both states. The benefits are mutual, and if the US and Japan truly wish to deepen their economic and diplomatic ties, the TPP is the perfect step forward.