Washington Times | 11 July 2019

Trump’s ’America First’ policy driving other countries to ink trade deals, analysts say

By Moss Brennan

President Trump’s election has sparked a rush of major trade deals around the world. The only catch: The U.S. isn’t a party to any of them.

The European Union is cutting deals with Vietnam and major South American countries. Japan and other nations are moving ahead with a modified Trans-Pacific Partnership (TPP) after the U.S. withdrawal, and Southeast Asian nations are talking with China, Japan, India and others about a Regional Comprehensive Economic Partnership.

Britain and South Korea say they have a free trade agreement ready for the day the United Kingdom formally leaves the European Union, and a group of African nations last week signed a continentwide trade pact that boosters say could mark the biggest reduction to trade barriers since the founding of the World Trade Organization in 1995.

Mr. Trump has put trade at the center of his economic agenda, and U.S. officials are deeply engaged in far-reaching talks to overhaul trade relations with China, the world’s second-largest economy, but the number of trade deals signed since Mr. Trump took office is modest. They include a modification to the trade deal with South Korea and an updated version of NAFTA with Mexico and Canada, which faces an uncertain ratification fight on Capitol Hill.

Analysts believe Mr. Trump’s “America First” approach to trade and tariffs may paradoxically has spurred other countries to step up and become leaders of trade liberalization.

“The European Union is taking more of a leadership role, signing agreements with a number of countries,” Daniel Griswold, senior research fellow at the Mercatus Center, a pro-market think tank at George Mason University in Fairfax, Virginia.

Chinese President Xi Jinping, also head of the country’s Communist Party, has become an unlikely cheerleader for open trade and lower trade barriers as Mr. Trump tries to refashion a global trading system that he says has unfairly exploited the openness of the American market.

After Mr. Trump pulled out of the TPP in his first week on the job, “China is filling the vacuum in the absence of U.S. leadership in that part of the world,” said Mr. Griswold, adding that Beijing is seeking deals and making concessions to other trading partners even as Beijing plays hardball with the Trump administration.

As China raises retaliatory tariffs on U.S. goods, Mr. Griswold said, it has “been lowering duties on a range of products for imports from the rest of the world.”

A leg up

Fred Bergsten, senior fellow and director emeritus at the Peterson Institute for International Economics, said other countries are signing deals that give their companies a leg up against U.S. rivals, who still face higher tariffs and other barriers.

“As other countries sign trade agreements with each other, they discriminate against [the U.S.],” Mr. Bergsten said. “They give better market access to their trade partners. Outsiders get worse market access, and we lose sales around the world.”

Many top U.S. partners and rivals around the globe are signing free trade agreements or are in talks for accords.

While Mr. Trump was negotiating another truce with China during the Group of 20 summit in Japan, the European Union was finalizing a trade agreement with the four Latin American countries that make up the Mercosur on manufacturing and agricultural goods. The Mercosur deal allows Latin American farmers and ranchers access to the markets in Europe, which is still hard for American farmers to enter.

“We reinforce multilateral agreements whilst others rip them up,” EU Trade Commissioner Cecilia Malmstrom said in a Twitter post about the Mercosur deal. “A market of almost [300 million] people open to us but effectively closed to our competitors.”

Antonio Camardelli, head of the Brazilian Beef Exporters Association, told the Reuters news agency last week that the agreement is like an invitation to speak with other countries and trade blocs. His main targets: Indonesia and Thailand.

The EU-Mercosur deal will eliminate tariffs on cars, parts and machinery while the U.S. has proposed tariffs on $4 billion of imports from the EU, including a threat to levy tariffs on European cars and car parts. Europe also is resisting American demands to include agriculture in any trade talks.

“[Other countries] are trying to maintain the momentum, keep the bicycle moving forward, toward greater liberalization. And so they have actually accelerated toward new agreements, more liberalization, as the U.S. has been withdrawing,” Mr. Bergsten said.

Keith Johnson, geoeconomics correspondent for Foreign Policy, wrote in a recent analysis that the death of the postwar liberal trading order has been greatly exaggerated. It’s just that the U.S. isn’t a big player at the moment.

“America’s sudden retreat into old-fashioned protectionism, and Washington’s frontal assault on the World Trade Organization and the decades-old rules that have upheld the world trading order, have fueled fears that globalization is dead,” Mr. Johnson wrote. “In reality, outside of the United States, most other countries are racing to tear down barriers and embrace free trade with an urgency not seen in decades.”

Mr. Johnson noted that days after Mr. Trump said Vietnam is “the single worst abuser of everybody” on trade in a Fox Business Network interview, Hanoi signed a far-reaching free trade deal with the European Union, which EU officials touted as “the most ambitious free trade deal ever concluded with a developing country.”

The deal between the EU and Vietnam will eliminate 99% of tariffs on goods and services between the two markets, just as the U.S. Commerce Department slapped import duties of 400% on Vietnamese steel imports.

In February, the EU entered into a free trade agreement with Japan that backers say inaugurates the world’s largest free trade zone. Tokyo and Washington this spring announced plans to start talks on a bilateral trade deal, but analysts predict any accord is a long way off.

“The agreement between the European Union and Japan was a real wake-up call because Japan, for a long time, wasn’t signing agreements with other countries,” Mr. Griswold said.

The EU has signed free trade deals with Canada, Mexico, Japan and Singapore since Mr. Trump took office and is in trade talks with India, Australia, New Zealand and Chile.

Global push

And it’s not just Europe.

On Tuesday, after four years of talks, African leaders gathered to officially inaugurate the African Continental Free Trade Area (AfCFTA), encompassing 55 nations and 1.3 billion people. It creates a $3.4 trillion economic bloc with no or minimal tariffs on most goods.

Even though Africa is not a big trade partner with the U.S., Mr. Griswold said the pact shows “other nations are moving ahead in a free trade direction through unilateral liberalization, through trade agreements” that do not include the U.S.

In a May report, the International Monetary Fund described the AfCFTA as a potential “economic game changer” analogous to the trade accords that boosted growth in Europe and North America.

Mr. Griswold and Mr. Bergsten said the U.S. has moved to a more protectionist policy when it comes to trade, even though Mr. Trump insists the ultimate aim of his get-tough approach is to tear down foreign trade barriers and sign better deals for American farmers, manufacturers and consumers.

“It looks like old-fashioned protectionism raising barriers to protect domestic interests,” Mr. Griswold said.

Canada, a close U.S. ally and a partner in the updated NAFTA agreement, is nevertheless working on bilateral deals with Japan, Singapore and India.

Talks among 16 members of the Association of Southeast Asian Nations and six Indo-Pacific states aim to form the Regional Comprehensive Economic Partnership, which would encompass roughly one-third of the global gross domestic product and half of the world population.

Analysts say the U.S. has one advantage, even if it is not part of many of the new trade deals and free trade zones.

“We’re still the most important economy in the world. That’s not going to change anytime soon,” Mr. Griswold said. “But instead of leveraging that to influence the direction of the world economy, we’ve withdrawn and other countries are moving ahead without us.”