The European Union is sending a strong message to the US, one that they hope will calm President Donald Trump’s itch to win a lurking trade war.
The EU has roped in the Japanese to fight back against the rise of protectionism which is the core of Trump’s trade policy.
For the EU and for Tokyo it is a long shot in their individual quest to fight-off the US, but the coup is worth it.
In the long run, the Japan-EU deal might take a bigger bite at the American global market share given that Japan and the EU account for about 40% of global trade.
With the Japan-EU free trade agreement signed on Tuesday, European and Japanese exporters and importers will now enjoy the perks they lost in the US market.
After signing the historic deal, the EU pressed China to open its economy to outsiders.
China might have no choice but to comply as it learns the rope of international diplomacy. Analysts from Malaysia claimed the Chinese Communist Party had a different vision of the running of the world.
They thought their cash and promises would lure everyone. However, it is now clear to them that many nations want to keep their economic independence instead of kowtowing to Beijing.
Nevertheless, the Japan-EU deal shows there the significant need for the rest of the world to follow the two major trade entities to capitalize on the opportunities ahead.
With Trump pushing the rest of the world trading powers in a corner, against all the odds, they are coming together to ease the pressure borne by the US. By uniting on the model of free trade and globalisation, these countries are opening up to deals once thought far-fetched.
Thus, the rest of the world should also follow in their footsteps and join in free trade talks that would defrag American protectionism. If this was to happen, it might bring Trump back to earth.
In the same breath, the EU is reaching out to Beijing in an attempt to get the Chinese on board to push for reforms at the now contested World Trade Organisation (WTO).
Trump has accused China of manipulating and abusing the loopholes that the Europeans admit exists in the WTO rules.
The EU leaders made it clear recently the WTO and the global trade system had to be revamped to maintain their credibility.
To achieve this, the EU has to deal with a tougher trade partner. Getting China to revamp its own business model which is under attack from the US will be a gambit.
But the EU seems ready to take that bull by the horns after it became clear the US will not budge in its trade policies.
As bold as it sounds, the EU must decide whether it wants China as a partner or get China to shift guns on its own trade barriers and anti-competition policies, as mentioned by the Wall Street Journal.
Most certainly, the Japan-EU deal poses serious challenges to Mr Trump in his ‘America First policy’. It paves way for the creation of one of the largest liberalized trade zones in the world.
It is also the response from the EU against future ‘Brexit’ shocks. The deal will allow EU members to benefit from an easing in tariffs to and through Japan.
The deal eliminates $1.17 billion in tariffs for EU companies and almost $2.2 billion in tariffs for Japanese exporters to the European Union.
For the EU to hold talks with China on reforms needed at the WTO, its leaders must have trusted their guts that it will add to their response to Mr Trump.
And it makes sense since China is the one country facing the full brunt of the impending trade war with the US.
Beijing will have to consider joining both the EU and Japan in this long drawn battled to keep ‘free trade’ alive.
The EU-Japan deal is altogether more important for China to consider. It poses challenges to China’s export to the EU. Hence, shaking the extended arm of the EU appears to be the right thing for Beijing to do.
But the burning question is whether China is ready to change its global business model, a model that rests largely into the hands of the ruling communist party?
Well, China can’t afford to be left in the lurch while it is paying a heavier price from Mr Trump.
As for the EU it is not playing the sitting bull. It’s landmark trade pact with Canada provisionally enters into force this year.
It also has the deal with Mexico and restarted talks with Latin America’s biggest trading bloc in an effort to become the first outside party to gain access to this market.
The EU is slowly bringing the battle to Trump. And in this fight, the winner shall take all!