ECONOMY Japan-European Union Trade Deal 'Stark And Sobering Challenge' To U.S.

- Jul 15, 2017 -

The announcement of a pending free trade negotiation between the European Union and Japan represents a "stark and sobering challenge to the U.S. geopolitical role," according to one analyst who suggests world leaders are scrambling to capitalize on an apparent abdication of global trade leadership by President Donald Trump.

Nate Olson, director of the Stimson Center's Trade21 program, said in an email Thursday he believes the pending EU-Japan trade agreement's "high profile rollout in near-disdain of the U.S." isn't great news for Trump as he prepares for a two-day series of meetings with world leaders as part of the G20 summit in Hamburg, Germany.

Officials from the EU and Japan hinted earlier in the week that they would announce some sort of trade news in the coming days – effectively advancing an international free trade push that appeared to temporarily stall out after Trump withdrew from the Trans-Pacific Partnership and began the process of renegotiating the North American Free Trade Agreement.

A completely finalized deal wasn't part of Thursday's announcement, though Olson said he expects something will be ironed out "later this year, after the German elections in September."


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U.S. Trade Deficit With China Widens


But Olson doesn't think the timing of the EU-Japan announcement is a coincidence and was instead coordinated to make a "splash," especially considering the news came on the eve of a conference that will put Trump, German Chancellor Angela Merkel, Russian President Vladimir Putin and Chinese President Xi Jinping, among others, under one roof.

The idea that the announcement was some sort of slight to the U.S. is further supported by a string of recent criticisms levied by some of those involved in the deal against the ideology behind Trump's isolationist policies. Japanese Prime Minister Shinzo Abe said during a news conference Thursday that the upcoming deal demonstrates a "strong political will to fly the flag for free trade against a shift toward protectionism."

Only a few days prior, Merkel said during a speech before Germany's parliament that "whoever thinks that the problems of this world can be solved by protectionism and isolation l

Additionally, U.S. Trade RepresentativeRobert Lighthizer indicated during congressional testimony last month that bilateral trade discussions with Japan weren't making much progress – though the EU appears to have not faced that same difficulty.

With the U.S. now favoring the pursuit of bilateral trade deals and facing roadblocks with countries like Japan, Olson suggests there's a vacancy in international trade leadership that other countries are now trying to fill.

"America's current diplomatic challenges owe in large part to basic differences on policy. But a lot of it comes down to unforced errors," Olson said Thursday. "Cooperation is suffering, and the path forward becoming less certain."

For example, he said America's preference to either go it alone with sanctions and tariffs or to work with only a handful of countries to address issues that involve a host of international parties – like the glut of steel exports flowing out of China – misses an opportunity for broader economic cooperation.

ives under a huge misconception."

"It sets the standard for others," Jean-Claude Juncker, president of the European Commission, said of the agreement in a statement Thursday. "As far as we are concerned, there is no protection in protectionism."


It is an inherently global problem that requires a globally coordinated response - the sort of response the G20 is uniquely positioned to deliver," he said of the steel issue. "Instead, the Trump administration's ill-conceived threat to resort to unilateral tariffs in the name of national security has us on the brink of a mutually destructive trade breakdown."

But Chinese steel and EU-Japan trade are likely to be two of several elephants in the room over the next few days, considering Trump is also scheduled to meet one-on-one with Putin in the wake of allegations of Russian election meddling. And adding further complexity to the summit is pressure on China from the White House to rein in Pyongyang's missile program – possibly with the use of sanctions and tariffs.

It's unclear how and if the U.S. will throw its economic weight around to convince China to come to the table to deal with North Korea. But Olson said Trump is walking a fine line by bundling commerce and diplomacy priorities into one package.

"On North Korea, we're at a dangerous juncture. The Trump team has weakened vital diplomatic channels for confronting the [North Korean] nuclear program by again linking disparate security and economic issues with little apparent strategic foresight," Olson said. "That breeds uncertainty – and in some cases, resentment or worse – among both longtime allies and potential partners of convenience."


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