President Donald Trump is intent on punishing other nations for “ripping off” the U.S. in trade. Their governments aren’t exactly falling into line. They’re getting on with promoting trade and leaving the U.S. behind.
This week, countries in Asia and Europe showed that they can work to expand trade all by themselves. In Tokyo, leaders from Japan and the European Union signed an agreement to create one of the world’s largest free-trade zones, covering 30 percent of global output and nearly 40 percent of global trade. In Bangkok, negotiators from 16 countries including China, Japan, Australia and India resumed talks on the Regional Comprehensive Economic Partnership (RCEP), aiming to have most details ironed out by this fall.
Both agreements gained momentum after Trump’s inauguration and subsequent attacks on the multilateral trading system. Neither includes the U.S.
Granted, neither pact is very ambitious. These are narrow, old-fashioned free-trade agreements, focused largely on reducing tariffs. The EU’s deal with Japan will take years to phase in. Tariffs are already low, so the benefits won’t be dramatic: One recent study predicted a gain in of 0.2 percent a year over 10 years in Japan’s gross domestic product, and less than 0.1 percent for the EU.
Any final RCEP agreement is likely to be even less ambitious, given opposition from India to lower tariffs on goods and from countries in Southeast Asia to liberalizing services. Neither pact includes the kind of 21st-century standards set out in the original version of the Trans-Pacific Partnership — whether on labor and environmental conditions, or the data flows that have become critical to modern economies.
Still, modest gains are better than no gains — and better by far than the losses that will result from U.S. moves to curb trade. For particular industries, the benefits will be substantial. European vintners, cheesemakers and pork farmers will see tariffs on their exports slashed; Japanese carmakers will gain new access to European markets. The EU estimates exports of processed food to Japan will swell by 180 percent; Japan’s government predicts the pact will lead to nearly 300,000 new jobs.
In both deals, simpler rules of origin will make life easier for companies, especially smaller ones, seeking to export goods to multiple markets. Even limited progress in areas such as e-commerce and data protection is valuable, given that global rules governing digital trade have hardly been updated since before the internet was popularized. And every new trade pact preserves momentum toward greater openness globally. The EU is hoping now to strike deals with Australia and New Zealand, as well as countries in Latin America.
As with the TPP, which the other 11 signatories revised and revived after Trump withdrew from the pact, the U.S. loses out when new rules of trade are written without its participation. In the shorter term, higher U.S. tariffs raise costs and put many U.S. producers at a disadvantage. The more U.S. protectionism ramps up, while Asia and Europe lower their barriers to each other’s goods, the less competitive production based in the U.S. will become. This is not a formula for raising American living standards.
European Council President Donald Tusk said the EU-Japan agreement shines “a light in the increasing darkness of international politics.” Once, that would have been hyperbole; no longer. The good news for the rest of the world is that movement toward more liberal trade can proceed with or without the U.S.