An Urban's Rural View

The Japan Angle in the U.S.-EU Trade Accord

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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That was quite a U-turn on the European Union. One week, President Donald Trump is lambasting the EU as a "foe" of the U.S. The next, he's sitting down to a cordial White House meeting with EU President Jean-Claude Juncker and declaring a trade-war truce.

The shift even startled some of the president's aides. The Washington Post reported that just before the White House concord, "several of Trump's senior economic advisers had believed the president was on the verge of escalating the trade war by declaring 25% tariffs on nearly $200 billion in foreign-made automobiles" (https://www.washingtonpost.com/…).

Trump's about-face was especially curious because the truce with the EU seems so, well, flimsy. While no new tariffs were imposed, none were ruled out. There was vague talk of Europe buying American natural gas, but that talk seemed fanciful given Russia's cost advantage. There was vague talk of Europe buying more American soybeans, but no explanation of how that would happen; the EU doesn't normally tell its 28 member countries what to buy.

And while the U.S. and EU agreed to new trade talks, they disagreed about whether those talks will include agriculture. President Trump boasted he had opened Europe to U.S. ag and his team keeps insisting ag trade is on the table. The Europeans swore, convincingly to my mind, that they had made clear their unwillingness to discuss ag trade beyond their promise to buy more soybeans and to continue ongoing negotiations on American beef (https://www.wsj.com/…).

So, what is the president up to? What is this U-turn all about?

One thing seems clear from the administration's insistence, in the face of loud and repeated European denials, that agriculture is involved in the talks. The president is determined not to lose votes in farm country.

But that's not the only plausible explanation. I've heard at least three others, and I have one of my own to offer.

By the most cynical of the three, Trump manufactured a diplomatic success to distract attention from the uncomfortable political news about his former lawyer, who it now seems could become a cooperating witness in the Russia negotiation. Trump wouldn't be the first president to try to bury unfavorable headlines by creating favorable ones.

Another explanation says this is just Trump's negotiating style. He likes to go back and forth between playing nice cop and playing tough cop. He likes to surprise his negotiating counterparts and keep them off guard. Knowing this they have to worry that tomorrow he'll return to being the tough cop. It encourages them to make concessions now.

Yet another explanation suggests Trump has finally understood that it's foolish to wage trade wars against everyone at the same time. Making peace with the EU is a step toward enlisting allies against America's most-serious trade problem, China.

Here's my theory. Whatever else the president was doing -- and these explanations all make some sense -- he was sending a message to Japan.

Yes, Japan. The Trump team's negotiating leverage is the 25% tariffs on autos, and while the president has suspended that threat against the EU, he hasn't renounced it. As long as the trade talks are to Trump's satisfaction, the EU doesn't have to worry about those auto tariffs. He hasn't suspended the threat against Japan. The Japanese, who export a ton of autos to the U.S., do have to worry.

Ever since Trump pulled the U.S. out of the Trans-Pacific Partnership on his first day as president, he has been trying to get Japan to engage in bilateral trade talks. The Japanese have played hard to get. Only recently have they been willing to even talk about having bilateral talks.

By stepping back from the 25% auto tariffs against Europe after the EU came to the table, the Trump trade team is implicitly offering Japan the same deal: Engage in bilateral talks with us and we'll put the auto tariffs on hold. And, as if on cue, it was just announced that the first U.S.-Japan bilateral talks will get underway Aug. 9.

If this theory is correct, it could have implications for farmers and ranchers. The TPP withdrawal put them at a disadvantage in the Japanese market. President Trump has at times hinted that he might reconsider that withdrawal, but nothing has ever come of these hints. Bilateral talks with Japan could be U.S. ag's best hope of achieving greater access to the Japanese market, assuming Japan agrees to include ag in the talks.

Stay tuned. This could get even more interesting.

Urban Lehner can be reached at urbanize@gmail.com

(ES/)

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