Economic Policy

EU and Japan’s ‘Cars for Cheese’ Offers New Hope For Trade

Amidst the chaos of President Trump's trade tariffs, the European Union and Japan signed a new trade agreement. Andy Laub details what this means for international trade and the liberal order.


U.S President Donald Trump continues to double down on his trade war on the European Union, China, Japan, including US neighbors and closest allies Canada and Mexico with a tariff of 25%. America has endured long-standing free trade with both its neighbors on products such as steel, aluminum, whiskey, solar panels, cars and washing machines, going so far as risking the relationship with both Canada and Mexico. Canadian Prime Minister Justin Trudeau referred to the tariffs as “insulting.” Mr. Trump has shaken the global economy, a shakeup that will negatively impact both diplomatic relations with America’s allies as well as U.S consumers who will find such products more expensive and harder to come by, all for an effort to save a very small amount of American jobs. China and Canada, simply and understandably, responded with reciprocal tariffs whereas American companies like Harley Davidson, who were major supporters of Mr. Trumps campaign, were forced to move most of their industry to Europe to circumvent the crippling tariffs. IMF Managing Director Christine Lagarde has said: “no one wins from a trade war.”

While Trump continues his global trade war, other countries are no longer waiting or depending on the United States, setting up their own their own agreements to try and repair some of the damage the United States’ tactics are causing. On Tuesday July 17th, the European Union and Japan signed the largest bilateral trade agreement in history, which is expected to account for one-third of all global trade. Efforts on this landmark trade agreement have been underway for some time; for both sides it makes sense as both the European Union and Japan strongly champion trade liberalization and they’re the largest economies in the world outside of the United States and China. The agreement will slash customs duties and lower trade barriers on key products such as European food products, including wine and cheese as well as steel in exchange for Japan lowering its barriers on Japanese cars heading towards Europe, hence the dubbing of the agreement “cars for cheese.” The European Union is looking to both the east and the west to continue tapping into new markets such as Canada, Vietnam, Australia, New Zealand and India, all important geo-economic players.

Japan has long been one of the most important allies of the United States in the post war international order. Japanese Prime Minister Shinzo Abe made a concerted effort to build a close personal relationship with Mr. Trump even breaking protocol by being the first world leader to visit Mr. Trump shortly after his election in Trump Tower, which he later apologized to President Obama for. He’s been a frequent guest at the White House and even played golf with Mr. Trump at Mar-a-Lago leaving Prime Minister Abe scratching his head as to what he possibly could have done wrong to deserve this treatment from an ally. Of course in the 1980’s when Japan’s economy was surging from free trade with the rise of Japanese companies like Sony doing business globally, Trump remarked that Japan “systematically sucked the blood out of America.” His rhetoric on trade has been consistent throughout the years as Trump’s disdain for alliances and protectionism on trade are apparent. This agreement between the EU and Japan is very significant because with the United States abdicating its global leadership role, important places like the EU and Japan are stepping up to fill the void and help manage the survival of the liberal international order, where trade liberalization plays a key role. This agreement also creates a path for important players to make new trade deals with each other to keep the global economy going despite the trade war launched by Trump.

Despite Trump’s tough rhetoric during the campaign, Chinese President Xi Jinping was the first world leader Mr. Trump hosted for a summit at Mar-a-Lago. President Trump has also asked for greater Chinese cooperation on the North Korea nuclear issue, given they are the DPRK’s lone ally providing them with 90% of its trade. China used its position as a permanent member of the UN Security Council to adopt tougher sanctions on the DPRK and China had also cut off key trade on products like coal to North Korea. The massive new trade tariffs the Trump Administration has placed on China of about 200 billion dollars of course makes greater cooperation on issues like North Korea much harder with the politics and economics closely linked. The tariffs have called into question the very international order that the United States has stood by since the end of World War II- with trade at its core. Over the past few decades, the world had grown closer to opening up trade reducing tariff barriers. But, today, it seems the same international order has taken a few steps backwards. Reversing tariff barriers and establishing free trade with other nations will be harder for the United States in the near future. Yet, the simple fact that other nations are working towards establishing trade agreements without the United States offers some semblance of hope- hope that even without the United States at its helm, the principles of the liberal order will survive.

Andy Laub is the Director for Partnerships and Multilateral Affairs Analyst at Political Insights. He also serves as the International Chapters Director for Young Professionals in Foreign Policy. Andy received his Master of Science in Global Affairs from New York University.

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

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