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America fears China’s geo-political power more than China’s economic might

Economically, the US had similar issues with Japan in the 1980s as it does with China today, but hardly anyone in the US spoke of ‘war’ with Japan then. This is due to the difference in Japan’s geo-political position vis-a-vis that of China.

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The Bannonite wing of the new American right is angry about China. The anger stems primarily from the fact that China’s manufacturing has outpaced that of the US and economies similar to that of the US, which in turn has arguably been a cause of US industrial decline.

Steve Bannon recently gave a speech in the Chinese island of Hong Kong where he stated that while the US is at “economic war” with China, but that nevertheless he and Donald Trump admire China and President Xi Jinping in particular.

In this sense, Bannon has admitted the hypothesis I recently offered that many in the US are jealous of Chinese economic strength and wish that the US might be able to replicate a similar success story among its declining industrial base which still has a great deal of latent potential.

READ MORE: Steve Bannon’s China Syndrome reveals America’s jealousy of a China that is ‘great again’

In this sense, while Bannon’s talk of ‘war’ is worrying, his honestly is nevertheless, refreshing. Furthermore his genuine affection for the American working class is admirable and honourable, even if attacking China is not necessarily the best way to express such feelings.

Bannon’s remarks exist at a time when the neo-con faction of the so-called US right (a deceptive term if there even was one, but one which still is pervasive), don’t particularly care about the US industrial working class. However, they do care about US military hegemony and consequently, they are keen on disrupting China’s growing super-power status. Because China’s ascent to the position of global leadership, along with a renewed Russia and a still strong, though declining US, is largely fuelled by China’s economic engine, the neo-cons likewise seek to do whatever they can to disrupt China’s economic progress.

China’s One Belt–One Road is a testament to the fact that China seeks to use economic cooperation in order to diversify its national interests and increase its economic wealth and consequently, its influence. This contrasts with the Russian model of effective diplomacy based geo-political leadership and the US model of neo-imperialist proxy wars/hybrid wars.

In this sense, there are important economic similarities, but key geo-strategic differences between America’s current position via-a-vis China and America’s position vis-a-vis Japan in the 1980s and 1990s.

Made in Japan

In the 1960s and early 1970s, the moniker “Made in Japan” stood for cheap goods that were generally of lesser quality via-a-vis their western counterparts.

By the end of the 1970s, “Made in Japan” meant goods, particularly in respect of electronics and motor vehicles that were often superior to their US counterparts, all while still being more affordable and more reliable.

By the late 1980s, many Americans were complaining of Japan “dumping” their goods at US ports. At this time, Japanese money flowed into American cities and a combination of economic uncertainty mixed with what can only be described as latent anti-Japanese sentiments dating back to Pearl Harbor and the US experience in the Second World War in the Pacific, led to an anti-Japanese backlash that is hardly ever discussed today.

An article from the New York Times originally published on 14 August 1987, titled “U.S. Takes New Tack On Japanese Dumping”, states the following,

“In an action that could speed up price increases on products imported from Japan, the Commerce Department has found that two Japanese companies have been selling roller bearings at illegally low prices.

The case was brought because many Japanese companies have put off raising prices to compensate for the much higher value of the yen against the dollar. Instead, they preferred to absorb costs resulting from a strong yen and even sell at a loss, rather than lose market share.

This is the first time Washington has moved in a significant way to penalize Japan for following this course. Higher Duties Possible

The yen has risen against the dollar by more than 60 percent since February 1985, which should mean that Japanese products would cost much more in the United States than before.

But some bearing prices failed to rise at all during the investigation period, between March 1 and Aug. 31 of last year.

Should the ruling be affirmed, it would result in higher customs duties on the imported bearings, which have a variety of industrial uses, especially in transportation equipment.

But many analysts said the case could set a precedent for other industries in which the dollar’s decline has failed to improve their ability to compete against the Japanese.

The decision comes as the trading relationship between the United States and Japan has been strained by the Toshiba Machine Company’s sale of sensitive military goods to the Soviet Union and a disagreement between Washington and Tokyo, now partially settled, over the dumping of computer chips. Looking for ‘Fair Value’

Koichi Haraguchi, information counselor at the Japanese Embassy, said it was ”not appropriate” for his Government to comment because this was an ”internal action taken in accordance with U.S. dumping law.”

The duties are intended to raise the Japanese selling prices to what the Commerce Department has determined to be ”fair value.” This is computed on the basis of the exporters’ home market price, his selling price in other markets outside the United States, his cost of production and other factors including a margin of profit.

The department singled out two Japanese companies for sales of tapered roller bearings. It said that the Koyo Seiko Company was selling bearings at 70.44 percent below the computed fair value and that the NTN Toyo Bearing Company was selling bearings for 47.05 percent less”.

In summary, in the 1980s and into the 1990s, many in the US were upset with Japan for selling  goods to the US, which in spite of the strength of the Yen versus the Dollar, were still sold cheaply to US consumers due to Japan implementing a strategy based on volume rather than an instant Dollar for Dollar profit.

Déjà vu +

Today, an equal and opposite charge is levelled against China. China is accused of dumping high quality and/or much sought after goods on US soil for prices that generally are better than that of the domestic competition. Interestingly, where Japan was lambasted by the US for a strong Yen, China is inversely lambasted for having an allegedly weak Yuan.

This general attitude towards Chinese monetary policy is succinctly expressed in a piece from the Global Finance School economic news website:

“China periodically announces that it will float the value of the Yuan, which has traditionally been pegged to the U.S. Dollar. The Chinese central government has so far not made any serious changes. Many countries have legitimate reasons for a fixed exchange rate, but a large, economically powerful country like China should have the strength to maintain a stable currency in the open market without manipulation. Economists suggest the Yuan is undervalued by 15% to 40%, though it is hard to accurately conclude. The People’s Bank of China currently holds $3.2 trillion of foreign-exchange reserves.

How does China keep the Yuan weak? By buying US currency and treasury notes on the open market, China keeps demand for the US dollar high. They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus. To keep the influx of dollars from increasing the Chinese money supply, China “sterilizes” the dollar purchases by selling bonds to Chinese investors like commercial banks. By boosting the dollar, still one of the most powerful worldwide currencies, the Yuan looks weak in relation. For the last few years China has maintained the value of their currency at just under 7 Chinese Yuan to $1. Today $1 equals 6.54 Yuan. Something close to 5 Yuan to the dollar might be a better valuation based on other market factors.

The cheap Yuan gives China an unfair advantage in the export market, encouraging the United States’ growing trade deficit with China and keeping goods in markets like India from competing locally.

Holding so much US currency gives China a lot of power over the dollar, and thus the US economy. What if China’s central bank decided to sell a large amount of US dollars and treasury notes all at once? The dollar could drop, leaving the US economy gasping for breath.

Unnaturally cheap goods and services from China hurt growing economies like India. India has a trade deficit of $19.2 billion with China. India has the potential to manufacture and sell lower priced goods, if the Rupee could compete with the Yuan.

By making other currencies relatively expensive, the booming Chinese population is discouraged from importing goods from other countries, including India, the United States, and Europe, because the cost is artificially inflated. This restricts a balance in trade and increases other countries trade deficits with China”.

This analysis fails to take into account the fact that in almost all sectors, China’s industrial infrastructure is vastly more advanced than that of India, in spite of India’s development in such areas. Simultaneous to this, the article does not take into account the fact that US industry is in need of large scale modernisation and that modern EU industry is among the most regulated in world history. These are not value judgements on any of these economies or cultures, but they are the objective realities.

However, the article does display the angry attitude that many have towards China maintaining an monetary policy that has merely taken advantage of America’s large national debt combined with the fact that the US refuses to peg the Dollar against a metallic standard as many US monetary conservatives like Ron Paul have suggested for decades.

In short, whether competing against a vibrant 1980s style Japanese economy that could outproduce the US in spite of a high valued Yen or in competing with a China capable of a titanic industrial output irrespective of the valuation of the Yuan versus the Dollar, many of the same complaints have been made.

The geo-political X-factor 

Few Americans in the 1980s or 1990s spoke of “war” with Japan, whether economic or otherwise. The reason for this is due to the fact that Japan is a geo-political ally of the United States and has been so consistently since 1945.

If America cracked down on Japanese imports too severely, it would have made for an awkward geo-political situation that the US had invested greatly in on many fronts.

By contrast, China’s expansion while fuelled by its economic might, has wide ranging geo-political implications. If One Belt–One Road and cooperative monetary initiatives from the BRICS as well as other groups can help create a trading, financial and monetary system wherein the US Dollar, US dominated World Bank, US ally dominated IMF and US military alliances that are often prerequisite for doing deals with the US can be bypassed; the US will have increasingly little to offer the wider developing world and frankly the wider global east as a whole.

READ MORE: BRICS in talks to create own cryptocurrency in another blow to US Dollar

This is what America fears most. Far from propping up the Dollar, China with its gold reserves, Dollar reserves and the impetus to begin trading with Asian and Eurasian partners in local currencies, could do more damage to US hegemony than the dumping of anyone’s goods at US ports could ever hope to achieve.

READ MORE: 2017 BRICS Declaration: Emphasis on a results based, ideology free model of global economic cooperation and development

In this sense, America’s implicit fear is that Chinese initiatives could transform into a proverbial all-purpose lubricant which oils the machine of global trade, global finance and global monetary exchange. In so doing, China could undermine America’s role as the de-facto international financial and monetary hub. So goes the Federal Reserve, so goes America. This is especially the case since the US did so little to protect its manufacturing  base from internal crises  in the late 20th century. This has left America widely exposed to pressures from the international monetary and financial markets without the safety net of a strong domestic base for industrial production.

Japan’s success in the 1980s and China’s success today, demonstrate that if one has a modern, skilled and dynamic industrial base, one can whether the storms of both ends of the monetary valuation spectrum and still manage to have a powerful working economy that produces much sought after goods on world markets as well as domestically.

One of China’s biggest markets is its still partly untapped domestic market. This is something that is often forgotten in western discussions about China, as is the fact that increased Chinese labour costs mean that the idea of ‘cheap Chinese labour’ is no longer a reality. Mexico for example now has cheaper labour costs than does China. This is why many “American” cars are no manufactured in Mexico.

The idea that the Chinese economy only succeeds because of cheap labour and an ‘undervalued’ Yuan is a fallacy that only harms the ostensibly pro-western causes of those making the allegations.

The classic American export

In reality, the two most dynamic heavy industries in the US at the moment are the defence industry and the energy sector. This ironically is how many critics of Russia in the US, including John McCain have used to lambaste Russia, a country whose economy is actually diversifying far more than it is given credit for.

In this sense, exporting war is important for the United States and from different perspectives, both the neo-cons/neo-libs and Bannonites realise this. If America makes the machines of war and little else, war itself becomes an export commodity. In this sense, the US has also lost the moral argument to One Belt–One Road, a program which implicitly requires peace and stability along its trading routes.

A solution

There is a way to peacefully make America great again, so to speak. America could inject the same amounts of capital into its consumer industrial base as it does in respect of the defence industry. If the US did this, it could in surprisingly short order (if managed properly) become a respected and respectable competitor to the dynamic economies of Asia and Eurasia, in spite of the value of the Dollar, as Japan proved in respect of the Yen.

Here though, the outsourcing acolytes among the neo-cons/neo-libs would kick up a fuss and thus far the Bannonites haven’t produced a concrete manifesto for such plans. Such plans would however be vastly more productive than the neo-con hybrid wars or Bannonite economic wars against China could ever hope to be.

The world’s geo-political realities have become America’s foreign policy problems, all because the US is too busy pointing fingers at successful economies rather than investing in its own. The fault here lies with the American political culture.

Protectionist Ross Perot once talked of a “giant sucking sound” that would take jobs and economic vitality away from America if NAFTA was signed. NAFTA was signed and while the deal is deeply flawed, the biggest giant sucking sound of all is the one coming from the Washington D.C. swamp which no one America seems capable of draining.

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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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