Trump trumped

Just ahead of the G20, Japan and the European Union has agreed on a free trade agreement. This will create the world’s largest economic zone.

The trade deal is also a challenge to the US President Donald Trump, a staunch critic of globalization.

As the US withdraws from the global trading arena, two major global economies are making a case favoring globalization.

Background

Shortly after assuming office, Trump signed an executive deal withdrawing the U.S. from the Trans-Pacific Partnership. The TPP was a 12-nation trade deal that included the United States, Japan, Mexico, Canada, Australia, New Zealand, Vietnam, Peru, Chile, Malaysia, Singapore, and Brunei. It had been something that the former President Barack Obama had worked on for years. There was also fears that the US would withdraw from the North American Free Trade Agreement. But in April of 2017, the White House announced that the US would continue being part of NAFTA but would attempt to negotiate a “better deal.”

Much of his foreign and trade policies have centred around protectionism and isolation. 

Analysis

The free-trade agreement between Japan and the EU has been in the offing for years. Japan’s interest in the current trade agreement renewed after the US withdrew from the TPP. While the nuances are being worked out, all parties have agreed upon a common framework.

The agreement stipulates that trade barriers will be lowered for nearly all goods traded between Japan and the EU. Consequent to this, there will be deduction of custom duties totaling $1.1 billion per year. This gives competitive advantage for both European and Japanese exporters over American exporters in each other’s markets. This would be a huge boost to Japan’s automotive industry especially.

Shinzo Abe, the Prime Minister of Japan, made a veiled statement saying, “Amid moves of protectionism, we could demonstrate our commitment to raising the banner of free trade. It’s an outcome to be proud of.”

The fact that this deal was announced a day before G20 is not a coincidence.

Assessment

Our assessment is that this deal is a clear signaling to the US and American businesses that the major economies of the world will exercise its freedom to operate and strike deals that are beneficial for them. At the end of 2016, there was a growing concern that the era of globalization was coming to end with Brexit and Trump’s victory. However, a large number of global leaders including German Chancellor Angela Merkel, have fought this narrative. With this deal, it seems that the world may have just trumped Trump.