Japan is the world’s third largest economy and the United States is the largest economy in the world ranked by GDP. But, these two huge economies do not have a free trade agreement, which strikes the question – why not? Obviously, there are a lot of reasons why these two great nations have not struck a deal yet, but one could be on the horizon.
The effects of free-trade agreements have had a substantial impact on reducing barriers to trade and bettering all nations as a whole, look at NAFTA for example. It had many critics from the get-go but after a few years, the results were in – trade has more than tripled between the NAFTA members, job growth has been strong, and total employment has grown by almost 40 million jobs since 1993.
Talks have been underway concerning a trade pact between US, Canada, Mexico, and 8 other nations over the past few months and Japan expressed a greater interest to joining these negotiations. With the addition of Japan, the possible new Asia-Pacific trade-pact would account for nearly 40% of the global economy and one-third of world trade.
Not everyone has a positive opinion on the possible deal though. Some key democratic lawmakers, along with automakers and labor unions have expressed disinterest in the trade deal. The concerns revolve around Japans automotive and insurance markets, which have caused tension between the two nations in the recent past. Japans automotive market has strict regulations regarding how many automotive imports are allowed along with other barriers to entry which may be more effective than any tariff or quota – inspections, complicated distribution systems, and taxation requirements. Japan and the United States have took strides to bridge these non-tariff problem areas by negotiating more lax regulations on Japan's side and a long tariff phase-out period for Japanese vehicles entering the U.S. market.
In the current state of Japans economy, any economic growth would be more than welcomed. The official negotiations will likely start no sooner than July, which means a deal most likely won’t be struck this year.