The United States and the European Union have agreed to work towards zero tariff, thus avoiding an all-out trade war.
Also, it seems US President Donald Trump is looking at another version of the Trans-Pacific Partnership (TPP) after it pulled out of the trade deal in January this year.
Trump intends to renegotiate the trade pact and sign revised free trade agreements with Japan, South Korea and Canada. If so, that would pose a great threat to China.
TPP was proposed by then US President Barack Obama in 2010. As a multilateral trade framework outside the World Trade Organization, the TPP intends to further reduce tariff barriers and enhance unified market rules including intellectual property protection.
The trade pact was widely seen as a way to press China into further lowering tariffs, opening markets and complying with rules drafted by developed nations.
However, Trump decided to withdraw from TPP in January this year. He complained that Obama had made a lot of compromises in order to complete the deal, even if it would undermine American interests.
Trump and European Commission President Jean-Claude Juncker announced on Wednesday that the US and the EU have agreed to work together towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.
The EU also plans to buy more US liquefied natural gas (LNG) and soybeans. Both sides also agreed to iron out disputes on steel and aluminum exports.
The trade agreement still lacks details, but it marks a surprising reversal.
The EU and Japan signed a huge free trade deal on Tuesday last week that cuts or eliminates tariffs covering over 95 percent of goods.
Washington is also likely to sign trade pacts with other trading partners, including Japan, South Korea, and Canada. These agreements among developed nations would represent nearly 90 percent of the global economy.
However, these developed economies still rely on China as a global factory in the ecosystem. Other emerging economies such as Thailand and Vietnam don’t have the same scale even if they combine their capacities.
However, if Trump can convince more nations to join the trade alliance, he could force Beijing to make more concessions in lowering tariffs, reducing subsidies, opening up markets, and enhancing intellectual property rights protection.
This article appeared in the Hong Kong Economic Journal on July 27
Translation by Julie Zhu
[Chinese version 中文版]
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