Still, the United States is running a $76 billion merchandise trade deficit with Japan. More worryingly, Japan has fallen from the second largest recipient of U.S. exports and number-one provider of U.S. imports in 1989, to fourth in both categories. In trade, the critical metric is the total value of what is exchanged, and U.S.-Japan trade could be a great deal higher than it is today.
The problem is obvious: major barriers to trade remain on both sides. U.S. insurance companies complain that the Japanese government gives regulatory preferences to Japan Post, the government postal service, which also operates a huge insurance subsidiary. Meanwhile, the United States slaps 2.5 percent tariffs on Japanese automobiles and 25 percent on light truck imports. Although Japan has no tariffs on U.S. automobiles, it has erected other barriers to trade, including environmental standards and arduous certification procedures.
Japanese officials argue that their consumers simply do not like U.S. cars. Regardless, the non-tariff barriers also hurt sales. The United States exported just $1.5 billion in auto products into Japan, while importing $41 billion from Japan. Rep. Sander Levin (D-MI), the ranking member of the House Ways and Means Committee, which handles trade issues, points out that in 2012 American automakers sold only 13,637 cars in Japan. That's fewer than 40 a day. Japanese automakers, on the other hand, sold 5.4 million, including those produced at U.S. plants.
Zeroing in on non-tariff barriers make sense for both the Pacific and the European agreements. These barriers -- regulations, government subsidies for domestic industries, and import limitations -- increase prices of foreign goods and services, and keep them out of home markets.
For the European agreement, non-tariff barriers are equally important. Europeans have strong regulations limiting the import of genetically modified foods, and requirements that television networks "reserve for European works a majority proportion of their transmission time." In the telecom sector, "a barrier-free transatlantic market in telecommunications services has yet to emerge" despite technological and regulatory advances, according to a forthcoming study by the Foundation for Social Studies and Analysis, a Spanish think tank. With the possible exception of Vodafone, no European or U.S. telecom company has significant operations on both continents.
The truth is that tariffs throughout the world are relatively low. (The average tariff rate on foreign imports into the United States is only 3 percent.) But a study of non-tariff measures in 91 countries found that these barriers had the same impact as tariffs averaging 12 percent.
The real work of these two trade agreements will not be in bringing down tariff rates, but in harmonizing regulations. The E.U. tends to give governments more control over businesses, provides more subsidies, and operates on the risk-averse "precautionary principle," which often prohibits production distribution when a product might be hazardous, even when data is lacking.
In negotiating the Pacific and European agreements, the United States has the opportunity to shape global regulatory policy, and determine whether the world will go down a path that emphasizes state economic control, or free-market dynamism. Abe of Japan looks like a brave partner in that endeavor.
These two agreements could give the American economy the boost it needs to get to 4 percent growth -- the level that will reduce the deficit, cut unemployment, and extend prosperity and opportunity. The deals may help Japan end its own reign of stagnation. And they are also an opportunity for the United States to show global leadership. If negotiations succeed, freer trade could become the most important achievement of the Obama administration.