U.S.-Japan Trade Agreements and Negotiations

U.S.-Japan Trade Agreements and Negotiations

Updated April 3, 2024
U.S.-Japan Trade Agreements and Negotiations
The United States and Japan, among the world’s largest
Figure 1. Top U.S. Trade Partners, 2023
economies, are close economic partners. As a top U.S. trade
partner, Japan has been a priority for U.S. trade negotiations
and regional economic cooperation. The U.S. and Japan do
not have a comprehensive bilateral free trade agreement
(FTA); the partners have two limited trade deals. The U.S.-
Japan Trade Agreement (USJTA) involves tariff reductions
and quota expansions to improve market access. The U.S.-

Source: CRS with data from Bureau of Economic Analysis (BEA).
Japan Digital Trade Agreement covers rules on the digital
aspects of global commerce. The trade deals, which took
Japan’s FTAs with Other Major Markets
effect in 2020 without formal action by Congress,
In recent years, Japan has concluded several major FTAs
constituted what the U.S. and Japanese governments then
that exclude the United States, with implications for U.S.
described as “stage one” of a broader U.S.-Japan trade deal,
stakeholders. The Comprehensive and Progressive
but further talks did not materialize.
Agreement for Trans-Pacific Partnership (CPTPP) took
shape among Japan and the 10 remaining members of the
The Biden Administration has prioritized the U.S.-Japan
proposed TPP after President Trump withdrew the U.S.
trade relationship through several other initiatives such as
signature from TPP in 2017. At the time, many stakeholders
the regional Indo-Pacific Economic Framework for
viewed TPP as essentially a U.S.-Japan FTA. Japan has
Prosperity (IPEF), an initiative that covers selected trade
urged the Biden Administration to consider joining CPTPP.
issues but not tariffs or other market access provisions. In
The European Union (EU) and Japan also entered into a
2023, the United States and Japan signed a critical minerals
bilateral FTA in 2019. The 2022 Regional Comprehensive
agreement (CMA), which qualified Japan for certain
Economic Partnership (RCEP) lowers some trade barriers
benefits under the U.S. Inflation Reduction Act of 2022
and streamlines rules among Japan and 14 Asian countries,
(IRA, P.L. 117-169). The partners also continue to engage
including China. U.S. exporters have raised concerns that
on trade issues through initiatives like the U.S.-Japan
Japan’s reduced tariffs and nontariff barriers on imports
Partnership on Trade. Key issues for Congress include
from CPTPP, EU, and RCEP countries may undermine U.S.
oversight of implementation and impacts of U.S.-Japan
export competitiveness—Japan’s tariff reductions for
trade agreements, the role of Congress in authorizing such
agriculture in the USJTA help alleviate some concerns (see
agreements, and prospects for further cooperation.
below). New rules in the FTAs have also led to concerns
U.S.-Japan Economic Ties
that they may not reflect U.S. priorities. CPTPP suspended
Japan is the sixth-largest U.S. trade partner (ranked based
22 provisions, largely U.S. priorities, from the original TPP
on total goods and services trade), largest source of foreign
text (see CRS In Focus IF12078.)
direct investment (FDI) in the United States, and largest
2020 Trade Agreements
holder of U.S. Treasury securities. In 2023, U.S. exports to
The U.S.-Japan agreements cover some bilateral trade in
Japan totaled $121 billion ($77 billion in goods, $44 billion
industrial goods and agriculture, and rules on digital trade.
in services). U.S. imports totaled $184 billion, with goods
The Trump Administration’s decision to pursue limited-
accounting for the majority ($149 billion). The stock of
scope agreements with Japan differed from past U.S. FTA
U.S. FDI in Japan was valued at $77 billion in 2022,
practice, which typically involved one comprehensive
concentrated in finance and insurance. Japanese FDI stock
negotiation. Members of Congress and U.S. stakeholders
in the United States in 2022 totaled $712 billion, with the
generally supported the agreements, while advocating for a
largest share in manufacturing. Majority-owned U.S.-based
more comprehensive trade deal. (See CRS Report R46140.)
affiliates of Japanese multinational firms employed nearly
one million U.S. workers in 2021 (latest data).
U.S.-Japan Trade Agreement. USJTA tariff commitments
cover about 5% of bilateral trade. The United States agreed
The size of the U.S. goods trade deficit with Japan has at
to reduce or eliminate 241 tariff lines on mostly industrial
times been a source of tension, with some observers arguing
goods (e.g., machine tools, fasteners, steam turbines,
that historically the imbalance stems in part from various
bicycles and parts, musical instruments). The United States
nontariff barriers in the Japanese market and the weak yen.
also expanded its global tariff-rate quota for beef imports.
Such concerns arguably peaked in the 1980s and 1990s,
Japan agreed to reduce or eliminate tariffs on about 600
dissipating in recent decades in the face of Japan’s domestic
agricultural tariff lines (e.g., beef, pork, cheese), and
economic challenges, Japanese investment in the United
expand tariff-rate quotas for some U.S. products (e.g.,
States, and a shift in U.S. focus to concerns over trade with
the People’s Republic of China (PRC or
wheat). Opening Japan’s highly-protected agriculture
China).
market and reaching parity with exporters from Japan’s
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U.S.-Japan Trade Agreements and Negotiations
FTA partners has been a priority for the U.S. agriculture
Select Bilateral Trade Issues
sector. While U.S. industry generally supported the USJTA,
Major aspects of the U.S.-Japan trade relationship have not
some sectors (e.g., dairy, rice) had concerns over the lack of
been addressed in trade negotiations to date and would
new market access or rules on issues like sanitary and
likely be a priority of either side in any future talks.
phytosanitary measures. The Trump Administration used
Motor Vehicles. Trade in motor vehicles is a long-standing
delegated tariff authorities in the 2015 Trade Promotion
area of bilateral tension. Vehicles and auto parts account for
Authority (now expired) to proclaim the USJTA provisions.
around 30% by value of U.S. imports from Japan ($54.5
U.S.-Japan Digital Trade Agreement. Digital trade is an
billion in 2023), and a key goal for Japan is to reduce U.S.
area in which the two countries have had broadly similar
passenger vehicle and light truck tariffs (2.5% and 25%,
goals and approaches, although the U.S. position has shifted
respectively). Japan has no auto tariffs but imports
in the past year (see “Regional IPEF”). U.S. trade officials
relatively few U.S.-made vehicles or parts ($2.6 billion in
who negotiated the deal called it “comprehensive and high
2023). Japan argues that this reflects U.S. producers’ failure
standard,” in line with similar provisions in the 2020 U.S.-
to cater to Japanese tastes; U.S. industry argues low exports
Mexico-Canada Agreement. Provisions include requiring
stem from nontariff barriers, including discriminatory
non-discriminatory treatment, prohibiting certain data
regulatory treatment, which was a U.S. focus in TPP talks.
localization measures, ensuring cross-border data flows,
While Japan buys few U.S. cars, Japanese FDI in U.S. auto
and protecting against forced disclosure of source code and
production facilities is sizable. Prior to USJTA talks, the
algorithms as conditions of market access. The Trump
Trump Administration considered imposing tariffs on
Administration treated the U.S.-Japan deal, which did not
Japanese auto imports based on national security-related
require changes to U.S. law, as an executive agreement.
authorities. The threat was a motivation for Japan to enter
into bilateral talks resulting in the 2020 trade agreements.
Regional IPEF
Services. The United States has a services trade surplus
The Biden Administration characterizes IPEF as central to
with Japan, a major market for U.S. service providers (e.g.,
its economic strategy in the Indo-Pacific, and pursued the
insurance). Historically, U.S. firms have found it difficult to
initiative amid concerns that the United States has lacked a
enter segments of the Japanese market, arguing for example
robust trade agenda after withdrawing from TPP. Japan and
that Japan gives preferential treatment to insurance and
other IPEF partners have welcomed U.S. engagement, but
express delivery subsidiaries of Japan Post, the state-owned
also voiced concerns about IPEF’s potential to deepen
postal service and one of Japan’s largest banks and insurers.
economic linkages. IPEF involves four “pillars,” covering
Some TPP provisions were designed to address such
trade, supply chains, clean energy and infrastructure, and
concerns.
fair economy practices. To date, IPEF partners have
reached agreements in all pillars except for the trade pillar.
Issues for Congress
Trade talks stalled over differences among IPEF partners
Some Members of Congress and industry groups continue
and among U.S. policymakers and stakeholders over
to push for a comprehensive FTA with Japan. The 2020
provisions on the digital economy, labor, and environment.
trade deals, 2023 CMA, and IPEF talks involving the two
U.S. trade officials paused IPEF digital trade talks, citing
partners raise several questions for Congress, including:
the need for internal consultations on the U.S. approach.
• What role should Congress play in limited trade deals?
U.S. industry generally viewed the digital economy as a
• How have the 2020 U.S.-Japan trade agreements
promising and critical issue for IPEF, in part given the
affected U.S. firms’ competitiveness in the Japanese
groundwork laid in agreements like the U.S.-Japan Digital
market and what Japanese barriers remain a challenge?
Trade Agreement. (See CRS In Focus IF12373.)
Has the deferment of talks toward a comprehensive FTA
U.S.-Japan CMA
affected U.S. economic interests?
Cooperation on supply chain resiliency and diversification
• How will IPEF address U.S. trade issues with Japan? If
has been a key U.S.-Japan economic priority. Against this
IPEF partners move forward with digital trade
backdrop, in March 2023, the partners signed a CMA
discussions, will talks build on or depart from provisions
covering five minerals related to the production of batteries
of the U.S.-Japan Digital Trade Agreement?
for electric vehicles (EVs). The CMA does not change U.S.
• How does Japan view IPEF in relation to other regional
law or tariffs, and does not include other market access
trade initiatives, including CPTPP and RCEP?
provisions. The CMA was motivated by concerns of the
• Should the United States consider participation in
Japanese government and firms over requirements for EV
CPTPP or other regional deals to address bilateral trade
tax credits under the IRA. The Biden Administration said
concerns and, more broadly, promote U.S.-Japan trade
that Japan qualifies as an “FTA partner” for the purposes of
and economic leadership in the region?
meeting IRA critical minerals sourcing requirements, based
• What are the opportunities and challenges for the U.S.
on the CMA and the broader U.S.-Japan trade relationship.
and Japan to advance efforts to diversify supply chains?
While Japan is not a large source of mined critical minerals,
it possesses related capabilities, including mineral
Cathleen D. Cimino-Isaacs, Analyst in International Trade
processing and EV battery production. IRA provisions were
and Finance
motivated in part by U.S. policymaker concerns over U.S.
Kyla H. Kitamura, Analyst in International Trade and
dependence on China for EV batteries and critical minerals.
Finance
(See CRS In Focus IF12517.)
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U.S.-Japan Trade Agreements and Negotiations

IF11120

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