EU looks to Japan

EU Looks To Japan To Soften The Blow Of Donald Trump’s Trade War

The EU looks to Japan to soften the blow of Donald Trump’s trade war, but still, European markets in Japan account for only 20% of American markets.

Donald Trump’s Trade War With The EU

Donald Trump’s trade war against the European Union, Canada, Mexico, and China, has had a number of different consequences, that have been outlined in another article on this site

For instance, the motorcycle company, Harley Davidson, to avoid European tariffs, is now moving part of their manufacturing process to the EU. China’s tariffs against American soybeans is an issue of concern for American soybean farmers.

Other points of interest are the fact that the steel industry in the United States, an industry Trump wants to revive, is mostly dedicated to re-forming imported steel, rather than creating it from scratch.

Due to Trump imposing tariffs on European products like cars, the EU has taken to Japan for business instead

Japan And The European Union Sign Their Biggest Deal Yet

Today, in Tokyo, Tuesday, July 17th, the EU and Japan just signed their largest trade deal ever. According to the New York Times, they’re dropping customs duties on European commodities like cheese, wine, and cars (1).

The trade deal is a big one, as it supposedly covers around 25% of the global economy (1). Currently, there are other trade agreements under negotiations right now like in Australia, Vietnam, and China.

The EU has had to make a number of different crucial decisions lately, as Britain is slowly moving out of the union, (although critics say it’s not even the Brexit that Brits voted for), and the United States nor the EU are backing down from their tariffs’ battle.

While the breakdown of the barriers between Japan and the EU is good for business, there’s still no denying the fact that the EU is missing out on a crucial market with the United States.

Getting shunned by the United States is devastating for one’s economy. Especially due to the size of their former relationship, as, formerly, the EU’s biggest trading partner was the United States (1).

The chief economist at Berenberg, a bank in Hamburg, told the New York Times that the United States is “the one big market.” Their new trade deals are a form of damage control, rather than ones of compensation (1).

Following Donald Trump’s election, the EU became serious about building trade agreements with other countries, increasing their efforts as a result.

Since 2013, North American and European leaders began eliminating tariffs and attempting to harmonize regulations for products – (for the sake of simplifying the process) – like cars and pharmaceuticals (1).

However, in 2016, the talks slowed down. After Barack Obama began his exit out of public office, Europe chose to look for other deals.

And while Donald was getting ready to destroy the North American Free Trade Agreement, the EU was preparing to finish a deal with Canada (1).

Europe is also working with Vietnam, Singapore, and Mexico. The EU intends to edit their already-existing free-trade agreement with Mexico, and it should be finished by the end of the year (1).

The agreements with Vietnman and Singapore are going through their last stages. Europe is also striking out deals with Australia, Indonesia, Chile, New Zealand, Tunisia, Argentina, Brazil, Paraguay, and Uruguay (1). India is in talks as well.

The European commissioner for trade, Cecilia Malmstrom, said it has been a “very busy month.” Trade deals take a long time to finish, and many of them began several years ago (1).

For instance, the talks with Japan began in 2012. The former director general of the World Trade Organization said that the European Union’s belief is that they don’t need the United States in order to engage in free trade (1).

However, missing out on American markets are a huge factor. The EU is also talking with China, although they’re not sure entirely what China is thinking about; they don’t understand their foreign policy, and what they intend to do.

Economist Aren’t Quite As Sure About Free Trade With China Anymore

In the past few years, economists have started to look at free trade differently, mostly because of China’s massive – and swift- emergence to the near-top of the international system (2).

Previously, free trade agreements were considered to be good, no matter what. If we eliminate barriers to trade, it will be good for everyone, even if the recipient trading partner didn’t do the same thing.

However, when China became a super-power, seemingly within the span of twenty years, Americans began wondering if it was a good decision after all.

The result of these trade agreements wreaked havoc on the manufacturing industry in the United States. Globalization displaced many workers in the United States, the speed at which in China destroyed manufacturing in the United States (2).

Many of these workers in the US either struggled to find similar-paying jobs or didn’t even get a job at all.

Following the collapse of the industry in the United States, economists realized that they were completely unprepared to adjust to the expansion of another nation, resulting in massive changes in the socio-economic landscape of both the United States and China (2).

China blew up economically, while the United States’ manufacturing sector suffered.

Because of this, economists are re-considering free trade. But, for a long time, they’ve considered exports to be productive, rather than just focusing on the domestic markets (2).

Why Doesn’t The United States and The European Union Trust China?

There are a number of different reasons why the United States and the European Union don’t particularly trust China. Most of it has to do with China’s new system of government and economy.

For the first time ever, a massive superpower exists with free markets as its economic base and a totalitarianism system as its government. The effect of which is strange.

On the one hand, the country is engaging in free trade and building massively, but the government crushes dissent brutally. China isn’t a democracy at all, it’s an autocracy.

Lix Xiaobo, a human rights pioneer, died of liver cancer recently after he was locked in prison for supposedly “inciting subversion of state power (3).”

In 2010, he was awarded the Nobel Peace Prize, for uttering the words, “I have no enemies and no hatred,” in the face of China’s punishment of him for opposing them (3).

The Nobel Peace Prize was given to him for his “long and non-violent” struggle for human rights in China.

Oppression of dissent is one of the primary reasons why Western powers don’t trust China, because, while they’re willing to trade and open their markets up, they’re still an autocracy.

Non-violent political demonstrations in China are often met with government censorship, arrests, and criminal prosecution (3).

The Chinese government also works to keep their citizens in the dark about a number of different things, including prior demonstrations and protests.

Apparently, not a lot of people in China even know who Liu is, and Chinese citizens trust their government and have a high approval rating of it (3).

But China is aware of the history of the Soviet Union and understands that the free flowing of information could result in an uprising and a desire for change (3).

China And The European Union

Regardless, China will soon surpass the United States as Europe’s biggest trading partner. According to The Times, Washington right now is threatening the Chinese government with tariffs that would hit almost all Chinese imports within the United States.

But on the other hand, the EU is looking to get more control over their companies in China. One of the stipulations of their trade deal with China will be to allow control over their operations, rather than work with local partners.

In the past, the European Union and China have fought over trade and political issues.

Angela Merkel last week presided over a trade deal among Chinese and German companies where the two nations agreed to build a $10 billion plant, made by the chemical producing company, BASF, in Southern China. A few other companies agreed to trade cooperation.

With that said, China is still somewhat of an isolationist nation. According to Mark Leonard, an executive over at the European Council on Foreign Relations, when European companies come back from China, their pro-China stance has changed, going from being very in support of trade with the nation, to “very critical.”

The agreement signed today by the prime minister of Japan, Shinzo Abe, and the president of the European Council, Donald Tusk, will decrease tariffs by $1.2 billion.

And when the treaty takes effect in 2019, it will lead to an 8% increase in trade, jumping from 16% to 24%. Food companies will be the biggest companies to benefit from the treaties with Japan.

And Japanese carmakers will benefit from a reduction in tariffs. One of the reasons why Japan’s Toyota hasn’t been able to thrive as much in the EU is because of the tariffs.

Antonio Fagundo, the CEO of Masaltos, a shoemaker from Spain, said that he’s going to profit from the trade deal with Japan for a number of different reasons.

The trade pact will decrease the price of their shoes by 50%, and for that reason, their shoes will sell much easier in Japan. Fagundo said that he sold 500 pairs of shoes to Japan last year, but it will double once the tariffs disappear.

Spain, who is still recovering from an economic crisis that started nearly ten years ago, needs all of the trade help it can get. Mr. Fagundo said, as a result of the new deal with Japan, he’ll be able to expand his business, even though it will only be by three people.

Interestingly, the New York Times wasn’t able to get a much bigger company as evidence of the beneficial trade deal.

Additionally, after Trump dropped levies on steel and aluminum from the EU, he is now considering putting tariffs on their vehicles, which will cost the EU hundreds of billion dollars.

As a result of his steel and aluminum levies, the EU has begun penalizing key industries like motorcycles and orange juice. And if Donald keeps it up, they’ll retaliate with more tariffs.

While they’re eager to open up new markets, their trade deals with other nations, thus far, have been miniscule in comparison to their negotiations with the United States. For instance, the EU’s trade deal with Japan is 20% of Europe’s trade with the United States.

If the European Union and Donald Trump keep up their trade war, the EU will have no choice but to look for markets in Asia instead.


(1) The New York Times 

(2) Bloomberg 

(3) Asia Times