As leaders of the G20 nations converge on Hamburg for their annual meeting, two of the world’s biggest economies are poised to prove that globalisation is not dead, and that populist antipathy to free trade has not yet triumphed.
After several negotiating breakthroughs on the sticky questions of cheese and car parts, Japan and the EU are expected to sign a sweeping trade agreement on the eve of the summit on Friday. If they manage it in time, the FTA will stand as a powerful rejection of Donald Trump’s protectionist posture, just as the US president arrives in Germany for the summit. It will also highlight the challenge facing Britain. A hard Brexit would leave UK companies in some sectors on worse trade terms with their neighbour Europe than Japanese competitors halfway around the world.
European officials have let expectations run high, and will be embarrassed if the deal is not concluded this week. But even if it is not, it is highly likely to be signed soon. In Brussels, an agreement with the fourth-largest import market in the world will reaffirm the relevance of the European Commission. It will also provide a boon for European farmers, cheese-makers and vintners at a time when rural communities on the continent are being courted by populist forces.
In Japan the deal would hand a victory to Prime Minister Shinzo Abe as he deals with the fallout from a domestic scandal and America’s abandonment of another trade pact he fought for — the Trans-Pacific Partnership. Mr Abe’s original plan had been to use the US-led TPP as an external lever to force change on unproductive parts of the Japanese economy, in particular agriculture. To a large extent, happily, the deal with the EU will also fulfil this function. As Japanese tariffs for European cheese and meat are slashed, low-quality, high-cost Japanese producers will be forced to improve their competitiveness or go out of business. Mr Abe deserves credit for confronting these interests.
Over the longer term, this deal may also increase pressure on Mr Trump to reconsider his anti-trade animus. If US farmers start to find their markets in Japan shrinking because European competitors have preferential treatment, they will take their complaints to Washington. As will US makers of industrial components when Japanese producers gain an edge.
President Trump’s suspicion of globalisation is focused on China, a country he characterises as a currency manipulator and predatory exporter keen to dominate the west. This is precisely the way Japan was seen 30 years ago in both the US and Europe. That Japan’s commercial hegemony never materialised, and that it is now a welcome trade partner, illustrates how badly protectionist arguments age as the global economy moves on. Over three decades, competition in finished goods has given way to global supply chains. This should make the benefits of integration clearer.
It was the US, and to a lesser extent the UK, that built the global liberal trading order. Today, it is left to the rest of the world to uphold it, while those two countries — while insisting that fairness rather than protectionism is their goal — turn their backs on key commercial partners. Japan and the EU must therefore continue to lead: Japan by proceeding with the remaining partners on TPP, Europe by deepening trade with yet other markets, such as Mercosur countries of South America and with Mexico. As the rest of the world comes together, the UK and the US risk being left behind — or forced to rethink their repudiation of the global order they built.
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