Trade correspondent L.C. reports:
The Trump administration’s trade policies are facing serious threats worldwide. One of the president’s first acts in office was to exit the twelve-country Transpacific Partnership (TPP-12) negotiated by the previous administration. Japan, however, kept the free-trade-oriented pact alive minus the US, and now the American cows are coming home, literally (see below). As today’s Wall Street Journal notes:
Trans-Pacific Trade Party Is Raging on Without the U.S. — American beef exporters may be the first to feel the squeeze of the Asian agreement on tariffs
In January and February, Japanese beef imports rose 25% compared with the same months last year, driven by a 51% surge in frozen beef imports. The particular beneficiaries are Canada and New Zealand, which saw 345% and 133% growth in total beef exports respectively….
Japan’s tariff on imports from the U.S. [will rise] from 38.5% to 50% for a year. Yet CPTPP [the renamed TPP] members will be unaffected…placing the burden on the U.S. practically alone and hitting American agricultural competitiveness hard….
As fast-growing markets in Asia expand and the region’s advanced economies forge closer links, U.S. exporters increasingly will be left out of the party.
Talks for a bilateral US-Japan trade agreement kick off today and tomorrow when Economy Minister Toshimitsu Motegi comes to Washington to meet with US Trade Representative (USTR) Lighthizer.
The underlying dynamic will center about which side has the upper hand: Washington because it wields the threat of automotive tariffs or Tokyo because US exporters are losing market share to competitors who already have trade deals with Japan.
Yet there is intense pressure on the White House to go for a very limited quick deal centered about agriculture, in particular clawing back for US farmers the ag concessions Tokyo granted in the TPP negotiations. These concessions are now being enjoyed by US competitors including Canada, Australia, and New Zealand through the CPTPP (the TPP-11) as well as the EU through the EU-Japan free trade agreement (FTA).
US and EU threaten tariff war over aircraft subsidies
A fourteen-year-old dispute in the World Trade Organization (WTO) between the US and the EU over government subsidies to Boeing and Airbus is coming to a head. The USTR office announced on April 8th that it is beginning the process of selecting EU exports to hit with tariffs in retaliation for the EU’s subsidies to Airbus that have been found to break WTO rules.
Shortly after the US filed its complaint against subsidies to Airbus in 2004, the EU filed a parallel complaint against US subsidies to Boeing. The EU case also resulted in a WTO finding of unfair subsidies, then US efforts to comply, followed by EU protestations that the US hasn’t fully complied. The EU is now seeking WTO authorization to retaliate.
The worst-case scenario will see massive, multi-billion dollar cross-Atlantic retaliation unleashed by year-end. If this happens it will likely disrupt US-EU relations so that the follow-up bilateral trade talks will fail and the Section 232 automotive tariffs threatened by the US will be imposed on Europe, hammering its already shaking economy.
But two factors are pushing Brussels and Washington toward a possible agreement on the airplane subsidies:
- The commercial aerospace sector can’t develop without government subsidies, and
- Competition is emerging. Other countries led by China (but including Japan, Russia, and Brazil) are also interested in producing large civil aircraft. That would undercut the Boeing-Airbus duopoly. A US-EU agreement on acceptable subsidies would signal to these other countries that they would likely face a WTO challenge if they encourage their domestic industries through massive subsidies.
US-China talks inching forward but so too China-Japan and China-EU talks
Progress is being reported in US-China trade talks, but few observers are willing to predict a signing date. Meanwhile, new issues are being aired by the US public, such as China’s coercive manipulation of rare earth supplies and prices. An op ed in today’s Wall Street Journal by the CEO of a metals manufacturer and distributor reports that
American [trade] negotiators seem to be ignoring China’s growing domination of raw materials that are crucial to both countries’ security and standard of living….
Rare-earth metals are essential for producing most technological equipment. It is impossible to build a car without cerium, a smartphone without europium, a guided missile without neodymium. China now controls the supply of all 16 strategically critical rare-earth metals. In fact, 96% of global mining output for rare-earth metals comes from within China’s borders, and the country gained control of the remaining 4% in 2017 by acquiring the Molycorp rare-earth mine in Mountain Pass, Calif., near the Nevada border.
Yet U.S. trade negotiations with China have ignored the future availability and cost of rare earths.
China-Japan
The fifth round of the China-Japan High-Level Economic Dialogue is taking place in Beijing, April 13th-15th. As with the China-EU talks noted below, a good outcome could give both countries leverage in their bilateral trade talks with Washington. The meeting, which follows by a year the fourth round, is a sign of improving Japan-China relations, at least on the trade front. The visit comes in advance of the anticipated visit of President Xi Jinping to Tokyo at the time of the June G20 Summit.
Reports as the meetings began said that Tokyo expected that the agenda will include intellectual property protection, forced tech transfer, and market access. Beijing is expected to raise a couple of politically sensitive issues – a Japanese endorsement of the Belt & Road Initiative and reconsideration of its government ban on Huawei and ZTE technology.
These agenda items are similar to what the EU discussed in its summit with China this week and are also the hot-button issues for Washington. But at present the US, Japan, and EU are largely dealing separately with China on the issues. This is because of President Trump’s preferred go-it-alone approach to trade issues with both allies and China.
China-EU
Premier Li Keqiang was in Brussels for the April 9th annual China-EU Summit. Last week it looked as though the Europeans were taking such a hard line, focused on China’s abusive trade and related practices, that the summit would not issue a joint statement and might even be called off. But that turned around this week. The summit issued a joint statement, concluded with a joint press conference, and led to warm and friendly words from Li. This was an outcome many attributed to the shared problems the two have with current US policy. Both see good China-EU relations as giving them each leverage in their respective trade talks with Washington. This is especially important to Brussels given its concern that the US-China talks might lead to measures that would disadvantage Europe, such as diverting Chinese purchases from the EU to the US.
The joint statement included text that appeared to be a rebuke to Washington: “The EU and China firmly support the rules-based multilateral trading system with the WTO at its core, fight against unilateralism and protectionism, and commit to complying with WTO rules…. Both sides call on all G20 members to safeguard free, open and non-discriminatory global trade.”
The WTO portion is important because it could make it harder for the US to work with the EU to put pressure on China through the WTO or work for reforms that Beijing opposes. On the other hand, China is now acknowledging the need for stronger WTO rules on industrial subsidies.
Uncertainty is holding back investment
It’s by no means certain that all these high-stake trade negotiations catalyzed by the Trump administration will end well. Nobel Laureate Michael Spence writes
The global economy is weakening, in no small measure because of a deep, widespread sense of uncertainty. And a major source of that uncertainty is the ongoing Sino-American “trade war.” … [T]he problem is not that tit-for-tat tariffs have had an especially large impact, except perhaps on particular US and Chinese economic sectors. Rather, the conflict has cast doubt on the future of global economic connectivity, which has led to lower investment and consumption in China and the United States, and among their respective trading partners….
Political developments are adding to the uncertainty. In the US, no one knows if the 2020 presidential election will result in a second term for Donald Trump or a new Democratic administration governing from either the center or the far left…. The situation in Europe is not very different.
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