Amid rising U.S. trade pressure and protectionism, Japan and the European Union have struck a landmark trade agreement. The EU-Japan economic partnership, signed July 17 in Tokyo, will gradually remove protections on 99 percent of Japanese goods exported to the European Union and on 94 percent of EU exports to Japan. Under the deal's terms, the European Union will also zero out its 10 percent tariffs on Japanese automobiles over the next seven years. Japan, in turn, will immediately lift its 15 percent tariff on European wine and dramatically lower barriers to imports of beef, pork and cheese from the bloc.
Though the deal had been in the works for five years, it picked up steam in early 2017 after the election of U.S. President Donald Trump, who vowed to overhaul U.S. trade strategy. Trump's pledge to pull the United States out of the Trans-Pacific Partnership was especially worrisome for Japan because it had hoped the pact would boost its economy and its efforts to counterbalance China's runaway economic growth.
The EU-Japan trade deal reflects the redoubled efforts of both parties to forge partnerships that will help soften the blow of U.S. protectionism — and maybe encourage Washington to return to multilateral trade discussions. The United States' exit from the Trans-Pacific Partnership spurred Japan and the deal's other remaining 10 signatories to forge ahead with negotiations and sign an altered version of the agreement in March. The process required Tokyo to do the unpleasant work of going against Japan's agricultural lobby to lift long-standing protections on the farming industry. (The EU trade deal also could cost Japan's agricultural sector, though the potential losses didn't derail the agreement.)
Similarly, in its quest to sign as many free trade agreements as possible, the European Union has worked to streamline its internal decision-making process to remove obstacles that dogged past trade discussions. The bloc heeded the lessons it learned from ratifying its 2016 trade agreement with Canada to try to smooth out the approval process for the Japan deal and avoid blowback from member states. To that end, the European Union split the agreement with Japan into two parts, opting to negotiate separately the issues, such as investor-state dispute settlement, that would require parliamentary approval in each member state. It used the same approach to negotiate its trade agreement with Singapore, which is now undergoing ratification.
For the United States, these trade deals pose a risk. Though they won't freeze the country out of trade — and though the U.S. market is still attractive — the agreements will increase competition for the United States in the global economy. The European Union and Japan together account for 37 percent of annual trade by value, and the United States now will have to compete against them without the privileged access they have to each other's markets.
