Updated November 9, 2022
U.S.-Japan Trade Agreement Negotiations
In October 2019, the United States and Japan signed two
valued at $132 billion in 2020, concentrated in finance and
agreements to liberalize bilateral trade. The U.S.-Japan
insurance. Japanese FDI stock in the United States totaled
Trade Agreement (USJTA) provides for limited tariff
$648 billion, with manufacturing the largest share.
reductions and quota expansions to improve market access.
The size of the bilateral goods trade deficit, which was the
The U.S.-Japan Digital Trade Agreement covers rules on
fourth-largest U.S. deficit in 2021, has at times been a
the digital aspects of international commerce. The trade
source of tension, with some observers arguing that the
deals, which took effect in January 2020 without formal
imbalance stems in part from various nontariff barriers in
action by Congress, constituted what the Trump and Abe
the Japanese market and the weak yen. Such concerns
Administrations then described as “stage one” of a broader
arguably peaked in the 1980s and 1990s, dissipating in
U.S.-Japan trade agreement, but further talks did not
recent decades in the face of Japan’s domestic economic
materialize. The Trump Administration used delegated
challenges, major Japanese investment in the United States,
tariff authorities in the 2015 grant of Trade Promotion
and a shift in U.S. focus to concerns over trade with China.
Authority (TPA, P.L. 114-26, now expired) to proclaim the
USJTA provisions, while the digital trade agreement, which
Figure 1. Top U.S. Trade Partners, 2021
did not require changes to U.S. law, was treated as an
Executive Agreement. The Biden Administration has not
pursued further bilateral trade talks with Japan, despite
urging from some stakeholders to resume negotiation on
issues left out of the initial agreements (e.g., auto trade and
services).
As the fifth-largest U.S. trade partner, Japan has been a
priority for U.S. trade negotiations, especially as recent
Japanese free trade agreements (FTAs) with other major
trade partners lower Japan’s tariffs on imports from several
countries, placing U.S. exporters at a disadvantage. Some
Members of Congress have called for the Administration to
Source: CRS with data from Bureau of Economic Analysis (BEA).
consider joining the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP). CPTPP
Japan’s FTAs with Other Major Markets
took shape among Japan and the 10 other remaining
In recent years, Japan has concluded several major FTAs
members of the proposed TPP after President Trump
that exclude the United States, with potential implications
withdrew the U.S. signature from TPP in 2017. The
for U.S. stakeholders. The Japan-led CPTPP, for example,
Administration to date has stated it is not interested in
entered into force for Japan at the end of 2018. The EU and
joining, but in May 2022 it launched the Indo-Pacific
Japan also entered into an FTA in early 2019. In 2022, the
Economic Framework for Prosperity (IPEF) with Japan and
Regional Comprehensive Economic Partnership (RCEP)
12 other partners in the region. IPEF is not a traditional
trade agreement entered into force, which lowers certain
comprehensive U.S. FTA, but instead involves four
trade barriers among Japan and 14 other Asian members,
“pillars,” including select trade issues (e.g., digital
including China. U.S. exporters raise concerns that Japan’s
economy, agriculture, trade facilitation, labor, and the
reduced tariffs and nontariff barriers on imports from
environment). It does not cover market access provisions
CPTPP, EU, and RCEP countries threaten U.S. export
through tariff liberalization. In late 2021, the
competitiveness for some products—Japan’s tariff
Administration also launched the U.S.-Japan Partnership on
reductions for certain agricultural goods in the USJTA help
Trade, to advance collaboration and engagement on
alleviate some concerns. New rules in the FTAs have also
common areas of interest and address specific trade issues.
led to concerns that they may not reflect U.S. priorities. E-
Bilateral Trade and Economic Relations
commerce provisions in the EU-Japan FTA, for example,
The world’s third-largest economy, Japan is the fifth-largest
do not cover the free flow of data, unlike the U.S.-Mexico-
U.S. trade partner, fourth-largest U.S. investment partner,
Canada Agreement (USMCA). Meanwhile, CPTPP also
suspended 22, largely U.S.-priority, provisions from the
and largest foreign holder of U.S. government debt. In
2021, U.S. exports to Japan totaled $112 billion ($76 billion
original TPP text. For more, see CRS In Focus IF12078,
in goods and $37 billion in services). U.S. imports totaled
CPTPP: Overview and Issues for Congress.
$168 billion, with goods accounting for the bulk of imports
Scope of U.S.-Japan Negotiations
($136 billion), most notably motor vehicles and parts. The
The Trump Administration’s decision to pursue a limited-
stock of U.S. foreign direct investment (FDI) in Japan was
scope agreement with Japan, covering only some tariffs and
https://crsreports.congress.gov
U.S.-Japan Trade Agreement Negotiations
digital trade, was a departure from past U.S. FTA practice,
(2.5% and 25%, respectively) would likely be a Japanese
which typically involves one comprehensive negotiation.
goal in any future trade talks. Japan has no auto tariffs, but
Several Members of Congress, U.S. businesses, and other
imports few U.S.-made autos ($2.1 billion in 2021). Japan
stakeholders strongly advocated for a more comprehensive
argues that this reflects U.S. producers’ failure to cater to
deal. U.S. negotiating objectives, released in 2018, as
Japanese tastes, while U.S. industry argues the low volume
required by TPA, also suggested a broader range of issues
of exports stems from nontariff barriers, including
would be covered, including services, investment, and
discriminatory regulatory treatment, which would likely be
intellectual property. The Trump Administration s tated it
a U.S. focus in future talks. While Japan buys few U.S.
would address such issues in later negotiations, which it
cars, Japanese FDI in U.S. production facilities is sizable
ultimately did not pursue. Analysts questioned the extent to
and supports 170,000 U.S. jobs, according to the BEA.
which the U.S.-Japan deal adheres to Article XXIV of the
Prior to the USJTA talks, the Trump Administration
General Agreement on Tariffs and Trade (GATT) under the
considered imposing additional tariffs on Japanese auto
World Trade Organization (WTO) that requires FTAs cover
“substantially al
imports based on national security-related authorities. The
l trade.” Some Members of Congress have
threat was a key motivation for Japan to enter into bilateral
historically taken issue with other countries’ partial scope
trade talks, but abated with the signing of the USJTA.
agreements, but Article XXIV adherence has rarely been
challenged at the WTO.
Services. The United States has a services trade surplus,
2020 Trade Agreement Provisions
and Japan is a major market for U.S. service providers (e.g.,
the Japanese insurance market accounts for about a quarter
The agreements cover some trade in industrial goods and
of all U.S. foreign affiliate sales in the industry).
agriculture and cross-border digital trade. Neither includes a
Historically, U.S. firms have found it difficult to enter
dispute settlement mechanism. For more, see CRS Report
segments of the Japanese market and argue that Japan gives
R46140, “Stage One” U.S.-Japan Trade Agreements.
preferential treatment to insurance and express delivery
U.S.-Japan Trade Agreement (USJTA)
subsidiaries of Japan Post, the state-owned postal service
The USJTA tariff commitments cover about 5% of bilateral
and one of Japan’s largest banks and insurers. Some CPTPP
trade. The United States agreed to reduce or eliminate 241
provisions were designed to address such concerns; similar
tariffs on mostly industrial goods, including machine tools,
rules may be a U.S. priority in future talks.
fasteners, steam turbines, bicycles and parts, and musical
Currency. Some U.S. stakeholders argue that commitments
instruments, and certain niche agricultural products, such as
on currency should be a priority in future talks, as exchange
green tea. The United States also expanded its global tariff-
rate quota for beef imports. Japan agreed to reduce or
rates have a significant effect on trade flows and Japan
remains on the Treasury Department’s latest currency
eliminate tariffs on about 600 agricultural tariff lines (e.g.,
beef, pork, and cheese), and expand preferential tariff-rate
monitoring list. A weaker yen makes imports from Japan
cheaper, while increasing the cost of U.S. exports. USMCA
quotas for a limited number of U.S. products (e.g., wheat).
has the first-ever U.S. FTA commitments on exchange rates
Opening Japan’s highly protected agriculture market and
and could serve as a template for provisions in future FTAs.
reaching parity with exporters from Japan’s FTA partners is
Issues for Congress
a major priority for the U.S. agriculture sector, as Japan is a
The 2020 partial-scope U.S.-Japan trade agreements and
major U.S. agriculture market. While U.S. industry
ongoing IPEF talks involving the two partners raise a
generally supported the USJTA, some sectors (e.g., dairy
number of questions for Congress, including:
and rice) expressed concerns over lack of new market
access or attention to other issues covered in comprehensive
What role should Congress play in limited trade
FTAs, such as sanitary and phytosanitary standards (SPS).
agreements?
U.S.-Japan Digital Trade Agreement
How have the 2020 agreements affected U.S. firms’
competitiveness in the Japanese market and what
On digital trade, an area in which the two countries have
Japanese barriers remain a challenge for U.S. firms?
broadly similar goals and approaches, U.S. trade officials
described the agreement as “comprehensive and high
How has deferment of talks toward a comprehensive
standard,” in line with rules in the USMCA. Provisions
bilateral FTA affected U.S. economic interests?
include requirements for nondiscriminatory treatment, and
How will the Biden Administration’s IPEF address U.S.
commitments to prohibit or limit data localization,
trade issues with Japan? Will the digital trade
restrictions on cross-border data flows, and transfer of
component reflect or build on the provisions of the U.S-
source code or algorithms as conditions of market access.
Japan Digital Trade Agreement?
Potential Provisions in Future FTA Talks Should the United States consider participation in the
CPTPP or other regional deals to address bilateral trade
Many major aspects of the trade relationship were not
concerns and, more broadly, promote U.S.-Japan trade
addressed in the 2020 agreements. Some priority issues,
and economic leadership in the region?
which may be a focus in any future talks, include:
Motor Vehicles. Trade in motor vehicles is a long-standing
Cathleen D. Cimino-Isaacs, Analyst in International Trade
area of bilateral tension. Autos and auto parts account for
and Finance
more than one-third of U.S. imports from Japan, and a
reduction of U.S. passenger auto and light truck tariffs
IF11120
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U.S.-Japan Trade Agreement Negotiations
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https://crsreports.congress.gov | IF11120 · VERSION 17 · UPDATED