Things are about to get real interesting. A new free trade deal with the EU? If Mexico does sign a separate trade agreement with the US, even though Mexico denies that is a possibility, where does that leave Canada? Outside looking in, that is where.
Trump just unveiled the new trade world order. Canada not included
No country participating in the world’s annual US$2 trillion in trade operates in an unfettered free market. The idea of true free trade has been so alien that when President Donald Trump proposed it at last month’s G7 meeting in Canada, it drew blanks among the other six leaders.
No longer. As of this week, a commitment is in place to begin to deregulate up to half of the world’s trade — the US$1 trillion between the U.S. and the EU — taking it out of the hands of politicians and bureaucrats and leaving it to participants in the free market. But that’s just the half of it. Out are the WTO and the world trading regime as we’ve known it. In is the Trump endgame of “four big zeros” — zero tariffs, zero non-tariff barriers, zero subsidies and zero barriers to market access.
The commitment, announced Wednesday at the White House jointly by Trump and EU President Jean-Claude Juncker, will start modestly, by first eliminating tariffs and subsidies on all non-auto industrial goods, and opening up the European market to American natural gas and farm goods. The U.S. expects to negotiate away the EU’s farm tariffs, which now average 10 per cent, as well as non-tariff barriers in agriculture (such as “non-science-based standards”). As put by U.S. Commerce Secretary Wilbur Ross, “everything is on the table” in the Trump administration’s grand strategy to revamp the world trade order.
For that reason, the emerging U.S.-EU trade agreement not only aims to reform the U.S.-EU half of the US$2 trillion in world trade, it also constitutes an agreement to reform the other half by creating an alliance against China. “To protect American and European companies better from unfair global trade practices,” the U.S. and EU said in a clear reference to China, “we will therefore work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.”
China is already reeling from its tariff war with Trump, with its stock market and currency falling and its central bank scrambling. Trump’s EU deal worsens China’s prospects by countering the retaliatory tariffs China has placed on American farmers. Trump needs their votes in the November midterm elections — especially the soybean farmers in the American Midwest, who ordinarily supply China with one-third of its needs. China has slyly loaded up on soybeans early, in advance of America’s fall harvest, to crash soybean prices prior to the midterms. Trump, in the announcement with Juncker, had some unwelcome news for China’s midterm-retaliation strategy: “Soybeans is a big deal. And the European Union is going to start, almost immediately, to buy a lot of soybeans — they’re a tremendous market — buy a lot of soybeans from our farmers in the Midwest, primarily.”
China’s midterm strategy could soon take another hit, too. In the next two months, Trump expects to sign a NAFTA-replacing trade deal with Mexico, a big purchaser of U.S. farm produce, to provide another big who-needs-China carrot for America’s Midwest voters.
The U.S.-EU trade commitment is as much a geopolitical strategy as a trade agreement. If China succeeds in its Made in China 2025 plan, it will control 70 per cent of the world’s “basic core components and important basic materials” in strategic industries, the springboard for its plan to overtake the U.S. as the world’s superpower. Reforming the world trade order, and eliminating the abuses that led to China’s economic rise, will curb China’s ability to supersize its military and bully its neighbours.
The EU trade deal accomplishes a second geopolitical goal, too: undercutting Russia’s influence over the EU. At NATO meetings earlier this month, Trump chastised Germany for its decision to increase its reliance on gas from Russia, which already meets two-thirds of German needs, by supporting a second Russia-to-Germany pipeline. This week the EU agreed to shift its energy purchases to U.S. natural gas, undercutting Russian sales while strengthening America’s and the cross-Atlantic alliance.
Trump’s reordering of the globe’s trading regimes will, not coincidentally, harm the economies of America’s foes and benefit those of America’s friends. The sole exception could be Canada, a consequence of the conclusion to the G7 meeting, which saw Prime Minister Justin Trudeau grandstand against Trump to win political points at home. Had Trudeau accepted the offer Trump had then made — by all accounts a generous concession to Canada — tariffs on Canada’s steel and aluminum exports to the U.S. could have been withdrawn and Canada could have concluded a deal that furthered its economy. Instead, the U.S. is focused on concluding a deal with Mexico, whose new president has a good relationship with Trump. Whether or not that deal excludes Canada — a distinct possibility — Canada has been relegated to third-wheel status and now depends on Trump’s graces. Given the offence he took at Trudeau’s grandstanding, Trump may well prefer to wait until the next Canadian election, to offer him the possibility of dealing with a leader more to his liking. – Financial Post
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