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US left out in the cold as Europe and Japan forge massive trade deal

7/6/2017

Rivaling in size of NAFTA, Japan and the European Union today announced a massive trade agreement that won’t include the United States.  The agreement will encompass approximately 40% of all world trade.  Under this agreement,  European and Japanese exporters will gain an edge over American exporters in each other’s markets.

Shinzo Abe, the prime minister of Japan, greeted the announcement as “the birth of the world’s largest free advanced industrialized economic zone.” “Japan and the European Union will hoist the flag of free trade high amidst protectionist trends,” Abe said in a news conference Thursday.  The deal is in partial response to President Trump’s refusal to participate in the Trans Pacific Partnership (TPP) trade agreement.  On his third day in office, Trump withdrew the US from TPP negotiations, which was a huge blow to Abe and his party in Japan.  Trump has accused China, Germany, Japan, South Korea and other countries of cheating on agreements with Washington. “The United States made some of the worst Trade Deals in world history. Why should we continue these deals with countries that do not help us?” Trump tweeted Wednesday.

The trade deal is a real loss for American agriculture in particular.  Japan is the United States fourth largest consumer of agricultural products, and the deal will allow European farmers greater access with lower costs to Japan’s market.  Tariffs on everything from pork, beef, fish, wine, dairy, chocolates and more will be significantly reduced, or eliminated altogether.  For example, the current tariff on beef shipped from Europe to Japan is 38%, this will be reduced to 9% while tariffs on some pork and certain vegetable products will be eliminated entirely.

Auto exports between Japan and Europe will also see a huge boost.  Europe will eliminate the 10% duty on imported Japanese cars, while Japan will eliminate barriers to importing European models.  American manufacturers have complained about accessing the Japanese market for forty years.  Not being part of the trade agreement will now make access even more difficult, if not impossible.

Even though losing the ability to trade fairly in 40% of the world market is a huge blow to the United States, an even bigger impact may be less obvious.  The US is in jeopardy of losing its long-held status as the most influential trade rule-maker in the world. As Japan and Europe negotiate the terms of what may become the biggest free trade zone in the world, they’re going to be creating standards and precedents that will in turn influence rules and other free trade agreements around the world.  In regards to agriculture, trade agreements can determine how beef and pork are raised and fed, what pesticides and herbicides can be used on crops, and which preservatives and additives can be used in packaged food.  Safety standards for other products like automobiles can also be effected, including how strong a bumper needs to be, or how fast an airbag deploys.  Instead of making the rules, the US will now need to comply with rules made by Japan and Europe if they have desire to sell goods in those markets.

The lesson for the US?  If it pursues a protectionist path or decides not to negotiate trade deals, the rest of the world will carry on without it.  In the process, its voice on how trade should be conducted will grow weaker.

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