Talking trade as tensions rise

Global trade tensions escalate as governments try to counter US President Donald Trump’s trade...
Global trade tensions escalate as governments try to counter US President Donald Trump’s trade policy. Photo: Getty Images
As United States President Donald Trump was meeting  Russian President Vladimir Putin, and creating global headlines for all the wrong reasons, Japan and the European Union quietly signed EU’s largest-ever bilateral trade agreement. Business editor Dene Mackenzie writes about the ongoing global tensions around trade and tariffs and the major announcements made in this week alone.

Trade and Export Growth Minister David Parker will next week meet and hold talks with his Pacific Alliance counterparts in Mexico, seeking further progress on a free-trade agreement with the four-nation grouping.

Mr Parker leaves today to attend the Pacific Alliance Summit in Puerto Vallarta before travelling to Mexico City to promote the Government’s new Trade for All agenda.

The Pacific Alliance is made up of Chile, Colombia, Mexico and Peru. As a group, it is the world’s sixth-largest economy and home to more than 220 millon people.

The minister says with a new government in Chile, and recent elections in Colombia and Mexico, the summit is an opportunity to engage with new political leaders in the region.

"We see significant potential to promote integration within our region, demonstrate our shared commitment to free trade and reject the rising tide of trade protectionism in the world.

"A progressive, high-quality and comprehensive trade agreement with the Pacific Alliance will create new opportunities by reducing barriers and levelling the playing field while deepening connections with all four countries."

Mr Parker had more good news to talk about when the United Kingdom launched public consultations on an FTA with New Zealand.

"There’s lots of other countries they could have chosen, but they have chosen us, and that is good."

Actually, the UK does not have as many options as Mr Parker may think. And New Zealand is not the only country Britain is considering for trade talks.

British Trade Minister Liam Fox said he would consult the public about a possible bid to join a Pacific trade group that included Canada, Australia and Mexico, once Britain left the European Union.

There would also be consultations on trade deals between Britain, the US, Australia and New Zealand.

United States President Donald Trump virtually ruled out an FTA between the US and the UK during his fleeting trip to Britain last week.

Mr Trump undermined British Prime Minister Theresa May in a vicious newspaper interview, published while the two leaders were dining.

He then said the former foreign secretary and opponent of Mrs May, Boris Johnson, would make a fine prime minister.

The trade tariffs Mr Trump is imposing on China, and the EU, is forcing a major rethink of how countries deal with future trading alliances.

The US is so big, as the world’s largest economy, it has become an essential export market for countries like New Zealand and Australia.

But New Zealand’s largest export market is China, the second-largest is Australia. As New Zealand is a driving force in the Comprehensive and Progressive Agreement for Trans Pacific Partnership — the trade agreement of 11 countries without the US — this country needs Mr Parker touring the world talking trade.

Mr Fox also announced a consultation process on potentially seeking accession to the CPTPP. The Confederation of British Industry Employers said companies would welcome the Government’s commitment to free and fair trade. However, the top priority was a trade deal with the EU.

Mr Trump met Russian President Vladimir Putin in Helsinki this week, creating global headlines after supporting Russia over his own intelligence organisations. Mr Trump claimed back in the US he "mis-spoke" and blamed the media for the mix up.

As the world’s media was focused on Helsinki, Japan and the EU signed the EU’s largest-ever bilateral trade deal called the Economic Partnership Agreement (EPA).

The EPA, which has been under negotiation since 2013, is set to create a free trade zone covering 600million people and nearly a third of global GDP.

Negotiations concluded last year but, with the formal signing, the way is paved for the deal to come into force early next year.

European Council president Donald Tusk and European Commission president Jean-Claude Juncker both criticised Mr Trump’s disruptive approach to world trade during their visit to Japan to sign the trade deal.

Mr Tusk said of the EPA: "This is an act of enormous strategic importance for the rules-based international order at a time when some are questioning this order."

The deal aimed to send a clear message: Japan and the EU stand together against protectionism. Japan and the EU are "predictable, responsible" defenders of a rules-based world order.

Back at home, Mr Trump is facing a backlash of sorts from manufacturers.

A group representing major vehicle manufacturers told the US Commerce Department imposing tariffs of 25% on imported cars and parts would raise the price of US vehicles by $US83billion ($NZ122.3billion) annually and cost hundreds of thousands of jobs.

The Alliance of Automobile Manufacturers, whose members include General Motors, Volkswagen, AG and Toyota Motor Corp, said it planned to issue the warning publicly.

"Higher auto tariffs will harm American families and workers, along with the economy, and will raise the price of an imported car nearly $US6000 and the price of a US-built car $US2000," the group said.

The Trump Administration in May launched an investigation into whether imported vehicles and parts posed a national security threat. Mr Trump had repeatedly said he would quickly impose tariffs of 20% to 25%. The Commerce Department said this week it had made no decisions and aimed to complete the investigation within a couple of months.

Now, Mr Trump says the US may hammer out a separate trade deal with Mexico, continuing to sow doubts about the future of the North American Free Trade Agreement he has frequently criticised.Then, he would do a deal with Canada.

But Canada is not waiting around for Mr Trump. Prime Minister Justin Trudeau shuffled his cabinet on Thursday ahead of a challenging 2019 election, stressing the need to diversify trade away from the US.

In a significant move, Trade Minister Francois-Philippe Champagne was promoted to the infrastructure portfolio where he will oversee plans to spend billions of dollars on major projects — not unlike New Zealand Infrastructure Minister Shane Jones’ role as overseer of a $1 billion annual provincial growth fund.

Mr Trudeau said the strains with Washington showed the dangers of relying so much on the US, which took 75% of all Canadian goods exports.

In the last year, Canada has signed free-trade deals with the EU and is part of the CPTPP.

Finally this week, the EU launched measures designed to prevent a surge of steel imports into the bloc following the US imposition of tariffs on incoming steel and aluminium.

The measures were the third part of the EU’s response to US tariffs. It also imposed tariffs on €2.8 billion ($NZ4.8 billion) of US imports, including bourbon and motor bikes, and has launched a legal challenge at the World Trade Organisation.

The European Commission has proposed a combination of a quota and a tariff to counter EU concerns that steel products no longer imported into the US will flood European markets instead.

The quotas for 23 steel product categories have been set at the average of imports over the past three years and include a 25% tariff set for volumes exceeding those amounts. The quotas are allocated on a first-come, first-served basis.

The main exporters of steel to the EU are China, India, Russia, South Korea, Turkey and Ukraine. The commission said the EU steel industry was in a fragile situation and vulnerable to a further increase in exports. US tariffs reduced the EU’s capacity to sell there, making the steel industry even more vulnerable.


At a glance

A trade war is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party.

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