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As China’s leader comes to Russia US acts to end Trump-Xi friendship

On the eve of Chinese President Xi Jinping’s visit to Moscow Trump administration by selling arms to Taiwan and sanctioning Chinese companies ends brief friendship between Donald Trump and China’s leader.

Alexander Mercouris

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Back in April, at the time of the US-Chinese summit in Mar-a-Lago in Florida, I said that US President Trump, inexperienced in foreign affairs, was badly misreading China’s President Xi Jinping.

In particular President Trump misread the Chinese President’s habitual courtesy as a concrete commitment that China would take action against North Korea in connection with that country’s nuclear and ballistic missile programme, and as a sign of Chinese support for the US cruise missile attack on Syria’s Al-Shayrat air base.

I said that this was all completely wrong.  Here is what I wrote about the summit at the time

The Chinese President must have found his recent meeting with US President Trump a strange affair.  Much of it was taken up with social engagements.  No important agreements were reached, and it doesn’t seem as if any really substantive discussions – for example on trade issues – took place.

The Chinese President must also have been bemused – and cannot have been at all amused – to be told without any advance notice over chocolate cake and without his aides available to advise him that the US President had just launched a missile strike on Syria.

President Trump did discuss with President Xi the festering North Korean crisis, but as is becoming the pattern with this inexperienced US President, he appears to be misreading the Chinese President’s typical courtesy and his standard assurances that China shares the US’s concerns about the North Korean nuclear programme as a commitment by China to do more to stop the North Korean nuclear programme than it is already doing.

That is almost certainly wrong, and the Chinese will also not be happy either by the recent US carrier deployment to the Korean coast, or by the US President’s threats to solve the Korean crisis by unilateral action, which they almost certainly construe (probably rightly) as empty bluff.

One suspects that Xi Jinping is relieved that with Putin he is getting back to normal business again.

Every one of these observations has since come true, with the Chinese in particular rejecting President Trump’s demands for all-embracing sanctions against North Korea.  Indeed as I discussed at the time, given the extent to which China’s prestige is bound up with preservation of the current regime in North Korea, it could not have been otherwise.

That President Trump totally misunderstood President Xi Jinping during their meeting in Mar-a-Lago has now been admitted by the Financial Times

The deteriorating relations come less than 100 days since Mr Trump hosted Mr Xi at his Mar-a-Lago estate and said the leaders would have a “very great relationship”. Since then, the White House has become frustrated China was not doing enough to pressure North Korea to abandon its ballistic missile and nuclear programmes….

“Early optimism on the US side has been dashed by what Trump thought he heard at Mar-a-Lago,” said Dennis Wilder, a former top White House Asia official. “This was a classic case where Trump heard what he wanted to hear, but it wasn’t actually the message that Xi intended to send.”

(bold italics added)

The result – in what I am sorry to say is an all too typical display of petulance – is that the Trump administration has now announced a $1.4 billion arms sale to Taiwan and is imposing sanctions on certain Chinese businesses which it accuses of conducting business with North Korea.

The Chinese are predictably furious, with their embassy in Washington publishing what is for them an unusually strong statement, which deserves to be set out in full

China is firmly opposed to the U.S. arms sale to Taiwan. China’s stance is clear and firm. The U.S. nevertheless made the wrong decision to sale arms to Taiwan in disregard of China’s strong representations. It seriously violates the principles of the three Joint Communiqués between China and the U.S., in particular, the August 17, 1982 U.S.-China Communiqué on Arms Sales to Taiwan, grossly interferes China’s domestic affairs, jeopardizes China’s sovereign and security interest and undermines China’s efforts to realize national unification. The Chinese government and Chinese people have every right to be outraged. The Chinese side has lodged serious representation to the U.S. side, and reserves every right to take further action.

The wrong move of the U.S. side runs counter to the consensus reached by the two presidents in Mar-a-Lago and the positive development momentum of the China-U.S. relationship. It will harm the mutual trust and cooperation between China and the U.S.. We urge the U.S. to immediately revoke the wrong decision and stop the arms sale to Taiwan.

The Democratic Progressive Party authorities refused to recognize the 1992 Consensus and the core principle that the two sides of the Taiwan Straits belongs to one China, and take “dechinalize” measures in Taiwan. The arms sale by the U.S. sends a very wrong signal to the “Taiwan independence” forces and harms the cross-Straits peace and stability. The U.S. has repeatedly said that it has profound interest in maintaining peace and stability across the Straits. However, its deeds contradicted its words.

Taiwan is a part of China. One China principle is a norm widely recognized by the international community. Realizing national unification at an early date is a common wish of the Chinese people, including Taiwan compatriots. It is the aspiration of the people and the general trend that will not be stopped by arms sale to Taiwan by some countries. We are confident and capable to contain the separatist activities of the “Taiwan independence” forces and defend our sovereignty and territorial integrity. We will never allow anyone to separate Taiwan from the country.

President Trump is not the first US President since the US and China re-established diplomatic relations to authorise arms sales to Taiwan.  However what will have made the Chinese especially angry is that no attempt is being made to conceal that this is being done as ‘punishment’ for China’s failure to do the US’s bidding over North Korea.  Here is what the Financial Times has to say about this

The White House had held off approving arms for Taiwan and sanctioning Chinese entities helping North Korea in the hope that Beijing would greatly ramp up pressure on Pyongyang after what Mr Trump interpreted as positive signals from Mr Xi. But while US officials concede that China has done more than before, including halting coal imports, they are increasingly frustrated that it has not gone even further…..

In addition to approving a $1.4bn weapons package for Taiwan — the first arms sales to the island that China considers part of its territory since 2015 — the US announced it would cut off Bank of Dandong, a Chinese bank near the border with North Korea, from the US financial system for helping Pyongyang engage in money laundering. It also imposed sanctions on a Chinese firm and two individuals over their ties with North Korea.

The proposed US sanctions would target Bank of Dandong, which is a relatively small financial institution but a significant symbol.

The last time the US government targeted a Chinese bank for its alleged dealings with North Korea was in 2005, when the Bush administration barred US companies from dealing with Banco Delta Asia in Macau.

While such moves were always going to anger Beijing, they were particularly pointed because they were announced as Mr Xi was arriving in Hong Kong to preside over ceremonies on Saturday to commemorate the 20th anniversary of the return of the British colony to China. They also came one week before Mr Trump and Mr Xi will meet on the sidelines of the G20 in Hamburg.

“The Chinese side has seen these things coming but is probably exasperated by the timing,” said Yanmei Xie at Gavekal Dragonomics, a Beijing-based consultancy. “Beijing wants the international media to focus on the pomp and ceremony of Xi Jinping’s visit to Hong Kong, not its failure to rein in North Korea.”

Unlike previous presidents, Mr Trump has explicitly linked Sino-US security talks with trade and economic disputes.

This is a short-sighted strategy.  At the height of the Khan Sheikhoun crisis in April the Trump administration seemed to be pursuing a policy of trying to isolate Russia from China.  In fact it even boasted it had succeeded in doing so during a vote in the UN Security Council.

That was always absurd, and provoked a public message of support for the Russian-Chinese alliance from Chinese President Xi Jinping to Russian President Vladimir Putin.

Nonetheless, though the Trump administration’s attempts in April to cause trouble between China and Russia were inept and certain to fail, they did nonetheless possess a certain crude geopolitical logic.  By far the greatest challenge to the US’s global position today comes from the alliance of Russia and China.  It is very much in the US interest to break up this alliance, unachievable though that objective unquestionably is.

Instead, on the eve of President Xi Jinping’s visit to Moscow on 3rd July 2017, and his summit meeting there with President Putin, clumsy US diplomacy has brought China and Russia if possible even closer together, and has brought home to the Chinese what they gain from the support of their Russian friends.

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While US seeks to up the ante on pressure on the DPRK, Russia proposes easing sanctions

These proposals show the dichotomy between the philosophy of US and Russian foreign policy

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The United States last week accused the DPRK of violating refined petroleum caps imposed as a part of UN nuclear sanctions dating back to 2006, and is therefore submitting a proposal to cut all petroleum product sales to North Korea.

The Trump administration is keen on not only preserving pressure on North Korea over its nuclear arms development, but in increasing that pressure even as DPRK Chairman, Kim Jong-Un, is serially meeting with world leaders in a bid to secure North Korea’s security and potential nuclear disarmament, a major move that could deescalate tensions in the region, end the war with the South, and ease global apprehensions about the North’s nuclear arsenal.

Meanwhile, Russia is proposing to the UNSC sanctions relief in some form due to the North’s expressed commitment to nuclear disarmament in the light of recent developments.

Reuters reports:

MOSCOW/UNITED NATIONS (Reuters) – Russia’s envoy to North Korea said on Wednesday it would be logical to raise the question of easing sanctions on North Korea with the United Nations Security Council, as the United States pushes for a halt to refined petroleum exports to Pyongyang.

“The positive change on the Korean peninsula is now obvious,” said the ambassador, Alexander Matsegora, according to the RIA news agency, adding that Russia was ready to help modernize North Korea’s energy system if sanctions were lifted and if Pyongyang can find funding for the modernization.

The U.N. Security Council has unanimously boosted sanctions on North Korea since 2006 in a bid to choke off funding for Pyongyang’s nuclear and ballistic missile programs, banning exports including coal, iron, lead, textiles and seafood, and capping imports of crude oil and refined petroleum products.

China tried late last month to get the Security Council to issue a statement praising the June 12 Singapore meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un and expressing its “willingness to adjust the measures on the DPRK in light of the DPRK’s compliance with the resolutions.”

North Korea’s official name is Democratic People’s Republic of Korea (DPRK).

But the United States blocked the statement on June 28 given “ongoing and very sensitive talks between the United States and the DPRK at this time,” diplomats said. The same day, U.S. Secretary of State Mike Pompeo spoke to his Chinese counterpart Wang Yi about the importance of sanctions enforcement.

U.S. Secretary of State Mike Pompeo is due to informally brief U.N. Security Council envoys along with South Korea and Japan on Friday.

Diplomats say they expect Pompeo to stress the need to maintain pressure on North Korea during his briefing on Friday.

In a tweet on Wednesday Trump said he elicited a promise from Russian President Vladimir Putin to help negotiate with North Korea but did not say how. He also said: “There is no rush, the sanctions remain!”

The United States accused North Korea last week of breaching a U.N. sanctions cap on refined petroleum by making illicit transfers between ships at sea and demanded an immediate end to all sales of the fuel.

The United States submitted the complaint to the U.N. Security Council North Korea sanctions committee, which is due to decide by Thursday whether it will tell all U.N. member states to halt all transfers of refined petroleum to Pyongyang.

Such decisions are made by consensus and some diplomats said they expected China or Russia to delay or block the move.

When asked on June 13 about whether sanctions should be loosened, Russian U.N. Ambassador Vassily Nebenzia said: “We should be thinking about steps in that direction because inevitably there is progress on the track that should be reciprocal, that should be a two-way street. The other side should see encouragement to go forward.”

The proposals of both the United States and Russia are likely to be vetoed by each other, resulting no real changes, but what it displays is the foreign policy positions of both nuclear powers towards the relative position of the DPRK and its rhetorical move towards denuclearization. The US demonstrates that its campaign of increased pressure on the North is necessary to accomplishing the goal of a denuclearized Korean peninsula, while Russia’s philosophy on the matter is to show a mutual willingness to follow through on verbal commitment with a real show of action towards an improved relationship, mirroring on the ground what is happening in politics.

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Europe divided over possible trade compromise with Trump

Even if a European proposal could score a trade cease fire, the war isn’t over

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US President Donald Trump has just lectured NATO on it member’s commitment performance and held a controversial meeting with the Russian President Vladimir Putin and is next week to receive EU Commission President Jean-Claude Juncker, with trade matters being high up on the agenda.

Juncker is expected to present Trump with a package of proposals to help smooth relations and potentially heal areas of division, particularly those surrounding Europe’s trade relationship with America. Those proposals are precisely what is cropping up as another area of divergence between some members of the EU, specifically France and Germany, just after a major contention on migration has been driving discord within the Union.

This gets down to whether Europe should offer concessions to Trump on trade while Trump is admittedly describing the Union as a ‘foe’ and has initiated a trade spat with the Union by assessing trade tariffs on steel and aluminum imports from Europe, spurring retaliatory tariff measures from the EU Commission.

France, specifically, is opposed to any sort of compromise with Trump on the matter, where Trump is perceived as an opponent to the Union and its unity, whereas Germany is economically motivated to seek an end to the trade dispute under the threat of a new round of tariffs emanating from the Trump administration, and is therefore seeking to find some sort of proposal that Trump will accept and therefore back down on his protectionism against the EU, and Germany in particular.

Politico reports:

Only a week before European Commission President Jean-Claude Juncker flies to Washington, France and Germany are divided over how much he should offer to U.S. President Donald Trump to end a deepening trade war, say European diplomats and officials.

But, they add, Germany has the upper hand. Berlin is shaping Juncker’s agenda, suggesting three offers that he could take to Trump on July 25 to resolve the dispute, according to people familiar with the plans.

The French are uneasy about the wisdom of such a conciliatory approach, however, and publicly accuse Trump of seeking to splinter and weaken the 28-member bloc, which he has called his “foe.”

Despite Paris’ reservations about giving away too much to the increasingly hostile U.S. president, the diplomats say that the European Commission’s powerful Secretary-General Martin Selmayr supports the German attempt at rapprochement, which makes it more likely that Juncker will offer some kind of trade fix next week.

“It’s clear that Juncker can’t go to Washington empty-handed,” one diplomat said. He stressed that Juncker’s proposals would be a political signal to Washington and would not be the formal beginning of negotiations, which would have to be approved by EU countries.

European ambassadors will meet on Wednesday to discuss the scope of Juncker’s offer — and indeed whether any offers should be made at all. France’s official position is that Europe must not strike any deal with a gun to its head, or with any country that has opted out of the Paris climate accord, as Trump’s America has done.

While Berlin is terrified by the prospect of 20 percent tariffs on cars and is desperate for a ceasefire deal, France has more fundamental suspicions that the time for compromise is over and that Trump simply wants to destroy EU unity. Paris is concerned that Trump’s next target is its sacred farm sector and is putting more emphasis on the importance of preserving a united political front against Washington.

Two diplomats said Berlin has a broad menu of offers that should be made to Trump: a bilateral deal to cut industrial tariffs, a plurilateral agreement to eliminate car duties worldwide, and a bigger transatlantic trade agreement including regulatory cooperation that potentially also comes with talks on increasing U.S. beef exports into Europe.

Making such generous offers is contentious when Trump crystallized his trade position toward Brussels on CBS news on Sunday: “I think the European Union is a foe, what they do to us in trade. Now, you wouldn’t think of the European Union, but they’re a foe.”

This undiplomatic bombshell came not long after he reportedly advised French President Emmanuel Macron to quit the EU to get a better trade deal than he was willing to offer the EU28.

In announcing Juncker’s visit on Tuesday, the White House said that he and Trump “will focus on improving transatlantic trade and forging a stronger economic partnership.”

Talking to the enemy

Diplomats note that a French-led camp in Brussels reckons Trump’s goals are strategic, and that he’s not after the sort of deal Germany is offering.

A French government official said that Washington quite simply wants to shift the EU off the stage: “Trump’s objective is that there are two big blocs: The United States and China. A multipower world with Europe as a strong player does not fit in.”

France’s Economy Minister Bruno Le Maire this month also issued a stark warning that Trump is seeking to drive a wedge between France and Germany — courting Paris, while simultaneously attacking Berlin’s trade surplus with the U.S. “In this globalized world, European countries must form a bloc, because what our partners or adversaries want is to divide us,” Le Maire said at an economic conference in Aix-en-Provence. “What the United States want, that’s to divide France and Germany.”

Despite these remarks from Le Maire, Anthony Gardner, former ambassador to the EU under the Barack Obama administration, said that he suspects the full magnitude of the threat has not sunk in. “Europe wake up; the U.S. wants to break up the EU,” he tweeted on Sunday. “Remember Belgium’s motto: L’union fait la force. [Unity creates strength]. Especially on trade. No side deals.”

One EU diplomat insisted that Brussels is not blind to these dangers in the run-up to Juncker’s visit.

Trump thinks that Europe is “too big to be controllable by DC, so it’s bad for America. Simple logic. And therefore the only deal that will bring the president to stop the trade war is the deal that breaks up the European market. I don’t quite think that’s the legacy Juncker is aiming for,” the diplomat said.

Europe is source of a deep frustration for Trump, as it runs a massive goods surplus with the U.S., at $147 billion in 2016. In particular, the U.S. president blames Germany’s mighty car exporters for this imbalance.

Leveling the field is not easy, however. With its market of 510 million consumers, Europe not only has the clout to stand up to the United States, but is increasingly setting global standards — particularly on food. This not only limits U.S. exports in Europe but also means that the European model is used in a broader trading ecosystem that includes Canada, Mexico and Japan.

New world order

Marietje Schaake, a liberal Dutch member of the European Parliament, observed that the U.S. trade strategy meshed with Trump’s political agenda.

“You could say there’s a new transatlantic relation emerging, of nationalists, populists and protectionists,” she said, pointing out that Trump’s meeting with Russian President Vladimir Putin has cast doubt on America’s commitment to supporting European security.

Trump’s opposition to the EU partly builds on an long-standing American discomfort about the EU’s economic policies.

“We already saw problems during the negotiations for the Transatlantic Trade and Investment Partnership, where the U.S. didn’t like EU demands such as on geographical indications [food name protections], and certainly didn’t like that we had ambitious requests in areas like public procurement,” said Pascal Kerneis, managing director of the European Services Forum and a member of the now defunct TTIP advisory group.

Kerneis said that Trump’s trade attacks are shifting the tensions to a completely new level: “He’s attacking on all fronts, hoping to break our unity, particularly between Germany and France.”

France particularly fears that Trump’s duties on Spanish olives could only be the first salvo on Europe’s whole system of farm subsidies.

EU lawmaker Schaake said that France is right to worry about a conflagration. “Once we give in in one area, he will attack at the next one,” she said. “If we allow Trump to play Europeans against each other, sector by sector, it will be a losing game.”

Even if Europe goes about capitulating to Trump’s gripes about the Union, whether it gets back to NATO defense spending or the trade deficit, the question remains whether this will satiate Trump’s political appetite and result in an improved trade perspective and politically acceptable position with Washington, and France’s concern that the matter runs deeper and has a foreign policy agenda behind it, and that caving to Trump’s pressure will only end in defeat for the EU would therefore appear reasonable.

But Germany is staring down the barrel of a possible new round of tariffs that would hurt some of their largest industries and is therefore under a lot of pressure to find a solution, or at least some sort of agreement that could deescalate the situation.

However, Germany’s recent record of resolving international issues is such that Germany is really only scoring cease fire agreements, rather than ending the real political conflicts, referring mainly to the immigration issue which recently resulted only in diffusing some inter Union tensions, but without resolving the problem itself.

In this context, Germany could promise the moon and stars to Trump, possibly avert further trade tensions, but yet fail to address the core political and trade conflicts that have already broken out. Essentially, then, such a compromise would only serve to function as damage control, while leaving Germany and the Union at a further disadvantaged political position relative to the States at the political table.

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EU and Japan ink free trade deal representing over 30% of global GDP

The free trade agreement represents a victory for free trade in the face of growing protectionism

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In a bid to preserve free trade and strengthen their trade partnership, the European Union and Japan have finished a free trade zone agreement that has been sitting in the pipeline for years.

The present global economic outlook provided the needed spur to action to get the ball rolling again and now it has finally reached the end zone and scored another point for free and open trade against the growing influence of protectionism, which has been creeping up with alarming rapidity and far reaching consequences in recent months.

Under the deal, Japan will scrap tariffs on some 94% of goods imported from Europe and the EU in turn is canning 99% of tariffs on Japanese goods.

Between the European Union and Japan, the trade deal impacts about 37% of the world’s GDP, making it one of the largest and impactful of such agreements.

The Japan Times reports:

Top European Union leaders and Prime Minister Shinzo Abe signed an economic partnership agreement Tuesday in Tokyo, a pact that will create a massive free trade zone accounting for 37 percent of the world’s trade by value.

European Council President Donald Tusk and European Commission President Jean-Claude Juncker hastily arranged their visit to Tokyo after Abe was forced to abruptly cancel plans to attend a July 11 signing ceremony in Brussels in the aftermath of flooding and mudslides in western Japan.

Japanese officials said the signing is particularly important to counter intensifying protectionism worldwide triggered by U.S. President Donald Trump.

Negotiations on the pact between Japan and the EU, which started in 2013, had stagnated for a time but regained momentum after Trump took office in January 2017.

“We are sending a clear message that we stand together against protectionism,” Tusk said at a joint news conference with Abe after they signed the agreement.

“The relationship between the EU and Japan has never been stronger. Geographically we are far apart, but politically and economically we could be hardly any closer,” Tusk said. “I’m proud today we are taking our strategic partnership to a new level.”

Tusk stressed that the EU and Japan are partners sharing the same basic values, such as liberal democracy, human rights and rule-based order.

Abe also emphasized the importance of free and fair trade.

“Right now, concerns are rising over protectionism all around the world. We are sending out a message emphasizing the importance of a trade system based on free and fair rules,” he said.

The pact will create a free trade bloc accounting for roughly 30 percent of the world’s gross domestic product. Japan and the EU hope to have the agreement, which still needs to be ratified by both parties, come into force by March.

Under the EPA, tariffs on about 99 percent of Japan’s exported goods to the EU will eventually be eliminated, while duties on 94 percent of EU’s exported items to Japan will be abolished, according to the Foreign Ministry.

The EPA will eliminate duties of 10 percent on Japan’s auto exports to the EU seven years after the pact takes effect. The current 15 percent duties on wine imports from the EU will be eliminated immediately, while those on cheese, pork and beef will be sharply cut.

In total, the EPA will push up domestic GDP by 1 percent, or ¥5 trillion a year, and create 290,000 new jobs nationwide, according to the government.

“The world is now facing raging waves of protectionism. So the signing ceremony at this time is particularly meaningful,” a senior Foreign Ministry official said earlier this month on condition of anonymity.

“The impact for Japan is big,” the official said.

Fukunari Kimura, an economics professor at Keio University, said the EU is now trying to accelerate the ratification process.

“This is a repercussion of President Trump’s policies. They will try to ratify it before Brexit in March of next year,” he said in an interview with The Japan Times last week.

But the deal has raised concerns among some domestic farmers, in particular those from Hokkaido, the country’s major dairy producer.

According to an estimate by the Hokkaido Prefectural Government, the EPA will cut national production in the agriculture, fishery and forestry industries by up to ¥114.3 billion a year, with Hokkaido accounting for 34 percent of the predicted losses.

“The sustainable development of the prefecture’s agriculture, forestry and fisheries industries is our top priority. We need to make efforts to raise our international competitiveness,” Hokkaido Gov. Harumi Takahashi said during a news conference July 10.

Japan and the EU had reached a basic agreement on the EPA in December.

Tokyo also led negotiations on the Trans-Pacific Partnership free trade pact after Trump withdrew the U.S. from the deal in January 2017.

In March, 11 countries including Japan signed the so-called TPP11, or a revised TPP pact that does not include the U.S.

“The Japan-EU EPA is another important step for Japan to strengthen its trade relationship with key trading partners, and demonstrate that trade liberalization is alive and well, even if the United States is taking a different stance,” wrote Wendy Cutler, a former acting deputy U.S. Trade Representative, in an email sent to The Japan Times last week.

“The EU deal also reduces Japanese dependence on the U.S. market and thus increases its leverage to resist unreasonable trade demands by the United States,” she wrote.

According to the Foreign Ministry, the EU, which accounts for 22 percent of the world’s GDP, was the destination for 11.4 percent of Japanese exports in 2016. In the same year, the figure for the U.S. was 20.2 percent and 17.7 percent for China.

In 2016, Japan’s exports to the EU totaled ¥8 trillion, while reciprocal trade was ¥8.2 trillion.

The deal provides tariff relief for both parties and can improve the quantity of trade between them, expand the economy and create many jobs. It also helps to further diversify their trade portfolios in order to mitigate the prospect of a single global trade partner wielding too much influence, which in turn provides a certain amount of cover from any adverse actions or demands from a single actor. In this way, current trade dependencies can be reduced and free and diversified trade is further bolstered.

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