When a Trade Deal Isn’t Good for the Global Economy
What Trump is likely to hail with his usual superlatives will in reality be a limited agreement.
(Bloomberg) --
This week is going to bring yet more evidence of the ways in which Donald Trump is ripping up the global trading order. The irony is it will come via a politically expedient deal the U.S. president is expected to sign with Japan.
What Trump is likely to hail with his usual superlatives will in reality be a limited agreement. It will help assuage some of the pain suffered by U.S. farmers as a result of his China trade war by opening up the lucrative Japanese market to some, but not all, American agricultural exports. It will include commitments on digital trade and tariff reductions. But much of the trade between the two countries — including importantly that of autos and auto parts — is not expected to be covered.
That last point may seem small. Yet it matters. It means the deal won’t be in line with World Trade Organization rules, which require bilateral agreements between members to apply to the vast majority of trade between signatories.
Such a move has consequences when it involves the world’s largest and third-largest economies. When two big guns are thumbing their noses at global rules it gives license for others to do the same. And that’s how order dies.
The way the U.S. and Japan plan to get around that — and the anger of industries not included — is to argue this week’s deal is the first installment of a comprehensive one, though there are doubts that bigger pact will ever materialize.
All of this is doubly ironic because this week’s “mini deal” is a consequence of Trump’s decision to pull out of a far larger one — the Trans-Pacific Partnership, which included Japan and 10 other U.S. trading partners. It will also borrow heavily from the agricultural concessions the Obama administration spent years negotiating with Japan for the TPP. The same applies to the digital provisions.
When Trump took office, the promise was that he would secure new bilateral deals to replace the TPP and other larger agreements. But countries like Japan have proved reluctant. Japan chose to proceed with the TPP. It also signed a comprehensive deal with the European Union.
To eventually get Japan to the negotiating table, Trump threatened auto tariffs. That threat, though, has been paired with an urgency to help a U.S. farm sector battered by the China fight and annoyed that competitors like Australia and France have benefited from the TPP and the EU-Japan pact.
The end result: a partial deal that will leave out whole industries, undermine the global order and look a lot like parts of an agreement that Trump walked away from less than three years ago.
Charting the Trade War
Head-spinning uncertainty on trade is a major drag on global growth and an increasing number of central banks are responding, with the Federal Reserve and European Central Bank easing policy and the People’s Bank of China likely to continue loosening. Bloomberg Economics’ modeling suggests monetary easing can offset some, but not all, of the drag.
Today’s Must Reads
- Plowing ahead | China’s cancellation of a planned visit to farms in the American heartland was done at the request of the U.S. as the sides intend to meet in October.
- Navarro in Geneva | White House trade hawk Peter Navarro will lead a delegation to Geneva to try to reform the 145-year-old global system of coordinating postal policies.
- Bracing for Brexit | The Port of Dover, through which a sixth of the U.K.’s trade in goods flows, can cope with any disruption thrown up by a no-deal Brexit, its chief executive officer said.
- Export slump | South Korea’s export are poised for a 10th monthly slide as trade disputes and a tech downturn set the economy on a course for the slowest expansion in a decade.
- Made in Thailand | More Chinese manufacturers are looking to set up production in Thailand to avoid U.S. tariffs, based on demand for the Southeast Asian nation’s industrial estates.
Economic Analysis
- Linking Asia | Infrastructure connectivity the reduces dependence on the U.S. is one of Asia's response to trade turmoil.
- Japan’s slowdown | Trade war turbulence is weakening Japan’s growth just before a sales-tax hike takes effect.
Coming Up
- Sept. 25: CPB’s monthly world trade monitor
- Sept. 26: U.S. advanced goods trade balance for August
- Sept. 24-30: The General Debate of the UN General Assembly
To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss
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