Kaiser Wilhelm II, the German emperor from 1888 to 1918, dismissed the cautious Bismarck, who kept Germany from disastrous two-front wars. (photo: Wikipedia)
President Trump is continuing his two-front trade war – battling allies and China at the same time — despite the fact that the allies want to work together with the US within the World Trade Organization (WTO) to curb Chinese abuses. The President’s trade policy might be called a non-Bismarckian or “Kaiser Wilhelm II” approach, after the two-front wars that Germany pursued in World Wars I and II.
Our focus this week is on developments concerning the US and its allies. As an article in the National Review puts it, “On Trade, No One Is Waiting for Washington.”
Trade correspondent L.C. writes:
The US vs. its allies
Japan-US summit at Mar-a-Lago
Prime Minister Shinzo Abe spent two days with President Trump at his Mar-a-Lago resort, on April 17th-18th. This was the third US trip the Prime Minister made to meet with the President, and it wasn’t entirely successful for either side. While the two leaders may have arranged for more cooperation on North Korea – which was a key goal – they didn’t narrow their differences over trade. They didn’t do a good job of papering over their differences either.
Abe had three (related) items on his trade agenda: to win an exemption from the US Section 232 steel and aluminum tariffs, to encourage the President to act on his recently renewed (or at least stated) interest in joining the Trans-Pacific Partnership (TPP), and to fend off pressure for entering talks for a bilateral free trade agreement. He succeeded only on the last point.
Trump had two main items on his trade agenda in these meetings: to win agreement to launch bilateral free trade agreement (FTA) talks and to push Japan to lower the bilateral trade imbalance. He didn’t succeed on either.
After the dinner with Abe on April 17th, Trump tweeted, “While Japan and South Korea would like us to go back into TPP, I don’t like the deal for the US. Too many contingencies and no way to get out if it doesn’t work. Bilateral deals are far more efficient, profitable and better for OUR workers.” This was seen both as a slap at the Prime Minister, with whom discussions about the TPP were expected to continue the next day and an indication of the President’s confusion. South Korea is not in the TPP, Trump never explained what “contingencies” in the deal he doesn’t like, and the TPP has the usual opt-out clause (Article 30.6) that states, “Any Party may withdraw…. A withdrawal shall take effect six months after a Party provides written notice.”
On the Section 232 tariffs, Trump linked them to the new trade talks. Considering that temporary tariff waivers were granted to countries not as closely allied as Japan and which produce lower-grade metal that is more directly competitive with US steel and aluminum than are Japan’s exports, the refusal to consider an exemption for Japan was an unfriendly gesture.
The US President also seemed indifferent to the fact that the Japanese Prime Minister has been under strong partisan attack in Japan and is in a greatly weakened position. By refusing to provide Abe with something positive to take back to Japan, the Trump administration may soon lose one of its most important security allies in the Pacific. Already, just a year ago, the US lost a strong ally in South Korean conservative president Park Geun-hye, overthrown in a corruption scandal not entirely dissimilar to the one threatening Abe. Her replacement, Moon Jae-in, a Progressive in politics, has been snuggling up to China and North Korea.
US allies conclude their own trade deals, US exporters the losers
The European Union (EU) moved this week toward implementing a free trade agreement (the “Economic Partnership Agreement”, a.k.a. EPA) with Japan, as well as free trade deals with Singapore and Mexico.
EU-Japan
The goal is to have the EU-Japan agreement signed at the annual Japan-EU Summit this summer, then approved by the EU Parliament and Japanese Diet so that it takes effect in early 2019.
The agreement eliminates EU tariffs on 99% of Japanese exports, with automotive tariffs (cars and parts) phasing out over eight years but faster for most other products. Japan’s tariffs on EU exports will be ended for 94% of products, including on 82% of agricultural and fisheries products. Japan will also further open its sub-federal government procurement market.
Since the EU competes with US exporters in many areas, the EPA means that US businesses will be disadvantaged in the Japanese market. Already this week US pork producers warned that they will be losing out in a very important market (Japan is the largest pork importer), a market where the eleven-nation TPP will also be making gains at the US’s expense.
The EPA also includes protections for Geographical Indications (e.g., “Beaujolais”, “Asiago”) as does the EU’s new agreement with Mexico.This gives the EU yet more clout in its drive to make GI protection a global standard. GI protection is not only a move toward more protectionism and increased regulation, but it is another loss for US trade policy – which opposes it – and US agriculture, which is disadvantaged by it.
EU-Singapore
The Singapore deal was in limbo for a long time, but on April 18th the European Commission began the ratification process for the Singapore Trade & Investment agreement by presenting the final text to the European Council.
EU-Mexico
European Commissioner for Trade, Cecilia Malmström
On April 21st European Commissioner for Trade Cecilia Malmström tweeted: “Today we have concluded a deal with Mexico!” This is the conclusion of the EU-Mexico effort to renegotiate their FTA. Originally signed in 2000, this deal was more complicated to overhaul than NAFTA, as the original version was quite limited, mainly just cutting goods tariffs. But now it has been expanded to cover much more, including finance, agriculture, and e-commerce.
Mexico’s President Peña Nieto said the agreement “confirms us as priority partner of one of the most important economic blocs in the world.” The agreement is also part of Mexico’s effort to diversify its trade beyond the US, given the uncertainty over NAFTA.
EU-Pacific
Brussels is also in the process of negotiating or launching negotiations for trade deals with Australia and several Southeast Asian countries, and has existing FTAs with Canada, Chile, Mexico, and now Singapore. This gives it strong trade ties to the TPP-11.
The US vs. China
This week brought no indications that the US and China are moving closer to resolving their trade clashes; in fact, it brought new chapters in the skirmish, including new Chinese duties on US sorghum and US penalties on ZTE. But Treasury Secretary Steven Mnuchin said he may go to China to try to defuse the tension, and Beijing said it welcomed the approach.
Click here to go to the previous Founders Broadsheet post (“What to do about China as an existential threat to the US and other free nations?”)
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