Will EU, Japan ink trade pacts with US? Still too early to say

Note: The ongoing US trade talks with the European Union and Japan are widely believed to be aimed at isolating China, especially since the trade pact the United States signed with Mexico and Canada on Sept. 30 to replace the North American Free Trade Agreement has a clause apparently targeting China. But will the trade talks progress smoothly? Yuan Youwei, researcher at the China Center for International Economic Exchanges, shared his views on this issue in his article Will EU, Japan ink trade pacts with US? Still too early to say.

The full text of the article is as follows:

The ongoing US trade talks with the European Union and Japan are widely believed to be aimed at isolating China, especially since the trade pact the United States signed with Mexico and Canada on Sept. 30 to replace the North American Free Trade Agreement has a clause apparently targeting China.

But will the trade talks progress smoothly?

To begin with, Canadian Prime Minister Justin Trudeau has said the "poison pill" seemingly meant for China in the US-Mexico-Canada Agreement will not stop Canada from advancing trade talks with China. And some fundamental disagreements have emerged between the US and the EU, and the US and Japan in their trade talks. For example, the US supposes Japan's "tariff" and "non-tariff" barriers are hurting US exports to Japan, especially in the automobile, agricultural product and service sectors.

The US, it seems, wants a trade deal with Japan to increase domestic employment in the automobile industry and force Japan to further open up its agricultural product market. In other words, the US wants Japan to open its market wider. But Japan insists it will open its agricultural, forest and fishery product markets to the US to the same extent as required by its trade agreements with other economies.

The US believes its exports face tariff and non-tariff barriers in the EU, too, especially in the agricultural products market. According to the joint statement of European Commission President Jean-Claude Juncker and US President Donald Trump in July, the US and the EU agreed to zero tariff, zero barrier and zero subsidy in all sectors except the automobile industry. The US wants to start trade negotiations on agricultural products, too, but the EU says the Juncker-Trump statement clearly excludes agricultural products, except soybeans, from trade talks.

In terms of tariff, the EU may want a trade agreement on limited commodities with the US rather than a comprehensive trade and investment agreement.

Trade negotiations between the US and the EU, and the US and Japan are not progressing well also because of some other factors. For years, the US administration and Congress have fought to play the dominant role in trade negotiations. For example, the US Trade Promotion Authority says the US administration should hold talks not only according to the goals set by the TPA, but also continue consulting the Congress during the talks.

As for the EU, it requires the consent of its all member states to reach a trade agreement with the US, and French President Emmanuel Macron has strongly opposed any trade negotiations between Brussels and Washington.

And that the Trump administration expressed its intention to hold trade talks just before the midterm elections shows it was desperate to garner support for the Republican Party in the Senate and House elections. Moreover, the news of new trade negotiations could boost market confidence at a time when the US economy is showing some worrying signs.

After becoming president last year, Trump withdrew the US from the Trans-Pacific Partnership agreement, saying he would "correct" the unfair trade agreements, because they are responsible for the US' huge trade deficit. But in September, the US' trade and budget deficits reached new highs, raising concerns over the sustainability of US finance and public debt.

Whether the US' trade talks with the EU and Japan will have a negative impact on China remains to be seen. But despite having some serious disagreements on the tariff issue, the US, the EU and Japan have somewhat agreed on the so-called third-country non-market-driven policy, which apparently is aimed at China.

The EU and Japan would do good to weigh the pros and cons, and take a clear stance on the Trump administration's "America first" policy before finalizing any trade deals with the US. In particular, Japan should pay closer attention to this fact because Sino-Japanese relations are improving, and Japanese enterprises are eager to invest in China. But it is still difficult to say whether a possible US-EU or US-Japan trade pact will include another "poison pill" aimed at China.