While the US and China continue to fight over trade, the EU and Japan seem in comparative harmony.
Put simply, it’s a tumultuous time for trade. As temperatures have risen across the Northern Hemisphere this summer, so has the heat on global trade: while the EU and Japan inked what has been described as “the world’s largest bilateral free trade deal” in July, early August saw trade tensions escalate between the world’s biggest export economies — China and the US.
On the first day of the month, US President Donald Trump’s administration said that the President had told US Trade Representative Robert Lighthizer to consider increasing proposed tariffs on $200bn of Chinese goods to 25% — from the 10% figure the administration was considering. Although a senior official for the administration claimed that no particular action had caused the recommendation, China fired back, with its State Council threatening to slap duties ranging from 5% to 25% on $60bn of US products — or over 5,200 US items — if the White House progressed with the levy threat. Officials from the country accused the US of “unilaterally” increasing tensions between the two superpowers.
Back in July, the US government released a list of the $200bn worth of Chinese products it was then planning to place a 10% levy on. Coal, steel and aluminium were included on the roster. Items on China’s August list include metals, agricultural products and lumber.
The latest developments follow months of similarly high trade tensions between the US and China. In early July, the US government placed a tax of 25% on roughly $34bn of Chinese imports, with major categories of products covering equipment and machinery. China responded with an equivalent 25% levy on $34bn of American goods, but instead of taking aim at mostly technological and industrial products, it went for the agricultural sphere. Wheat, corn, rice, sorghum and soybeans were all hit by the tariff. A second wave of taxes by the US — on a further $16bn of products — are pending, constituting part two of tariffs, on $50bn of imports, announced by the US in March. China has said that when this second set enters into force, it too will slap its 25% levy on an additional $16bn of US exports.
In light of what now seems impossible not to describe as a “trade war” between the US and China, the EU and Japan appear to have set themselves up as champions of multilateral trade co-operation
Strengthened trade across the pond
In light of what now seems impossible not to describe as a “trade war” between the US and China, the EU and Japan appear to have set themselves up as champions of multilateral trade co-operation.
Just 24 hours after President Trump infamously refused to endorse the assessment from the US government that Russia interfered in the 2016 US presidential election, EU leaders Jean-Claude Juncker and Donald Tusk, along with Japanese prime minister Shinzo Abe, “sought to establish themselves as the flag-bearers of the free world, in response to Donald Trump’s show of apparent solidarity with Vladimir Putin”, promoting the perks of the EU and Japan’s free trade deal. Mr Tusk described the pact — the EU-Japan Economic Partnership Agreement, which covers a third of the global economy and will remove almost all tariffs on products traded between the two parties — as “a light in the increasing darkness of international politics”.
“[Implementation of the deal] is an act of enormous strategic importance for the rules-based international order, at a time when some are questioning this order,” he said.
The European Commission said in July: “In the current international environment, an Economic Partnership Agreement between the EU and Japan will send a powerful signal to the rest of the world that two of the largest economies are resisting protectionism and promoting a rules-based international system. Openness to trade and investment remains one of the best tools to harness globalisation and create more economic growth and jobs. There is no protection in protectionism.”
The agreement is expected to enter into force next year. Once it has been ratified by parliaments from both camps, it will get rid of around 99% of levies on Japanese products from the eighth year following its implementation (car part taxes will be removed straight away), with the European Commission saying that the deal “will also focus on solving non-tariff measures”. Exports of goods and services are anticipated to be boosted by 13% once the deal has been put in place, with annual EU exports to Japan forecast to go up by €13bn.
Dry bulk bonus
Dry bulk shipping looks set to profit from the deal. According to the European Commission, it is anticipated that EU businesses selling agri-food products, forestry products and pharmaceuticals will benefit from the increased ease of exporting to Japan. With regards to the opening up of the Japanese market, the European Commission says that an ambitious trade agreement could deliver opportunities for the multinational organisation, specifically, in the agri-food and pharmaceutical industries.
Under the deal, Japan will remove duties on over 90% of agricultural exports from the EU “from day one”, and with products too sensitive for Japan to get rid of duties completely, duty-fee quotas will be increased or duties will be lowered for EU produce. The European Commission says that the pact will boost Japanese quotas for EU exports of malt and that EU exports of chemicals to Japan are predicted to see an annual increase of 6.9%, or an extra €1.6bn.
There’s no doubt that tariffs impact trade. And with negative impacts of President Trump’s tariffs having already been felt, it’s unsurprising that Mr Tusk has identified tariff wars, as well as irresponsibility, unpredictability, political uncertainty and excessive rhetoric, as threats to businesses and the business of moving cargo will be no exception.