European and Japanese officials have just finalised the long awaited Economic Partnership Agreement which while falling short of a full free trade agreement does help to open up Japanese markets to EU goods and the EU market to Japanese goods. While the deal was largely inevitable, it does appear that Donald Trump’s protectionist streak has helped to accelerate the finalisation of the deal. Likewise, European leaders have not hesitated to portray the deal as a rebuff of the present US opposition to free trade.
While the deal is clearly a step in the right direction both for Japan and Europe, the deal falls far short of the potential inherent in a would-be China-EU trade deal of a similar nature. One of the peculiar points of common approaches to free trade, particularly where Europe is concerned is that EU leaders are traditionally more keen on developing free trading relations with economies that are similar to those in Europe. This has the effect of creating documents which appear to very much embrace free trade but which in reality do not significantly change realities for either trading partner.
This is the case because economies who excel at making similar goods for roughly similar prices and whose domestic purchasing power is roughly the same, tend to balance each other out rather than leading to new and novel opportunities in the context of a free trading agreement. At the end of the day, Toyotas and Volkswagens are not drastically different in the year 2018, neither in terms of quality nor price. While the new agreement will help to reduce EU tariffs on Japanese cars over time while allowing more European agricultural goods into the Japanese market, it is not entirely clear if there is enough demand on either side for the deal to make a significant difference to either economy. In this sense, such cautious free trade deals are in many respects the more attractive cousin of protectionism.
By contrast, the Chinese and EU economies are incredibly diverse when compared with one another. Because of this, both sides stand to gain in the win-win formula if the EU were to open its markets to China in the way that it just has with Japan. The inverse is equally true of China where markets are already opening up to the entire world, including Europe.
At a time when inflation is retarding living standards across much of the EU, effective and fairly priced Chinese industrial goods could help to elevate living standards throughout the EU. Likewise, if China and Europe were able to intensify cooperation in hi-tech innovation, pharmaceuticals, transport infrastructure, aviation and scientific research, it would help both sides to learn from one another at a time when China is accelerating development in its research and development sectors while Europe’s remain globally strong but partly stagnant. As many of China’s high-speed trains are now superior to those pioneered in Europe and Japan, China could be an important partner for nations looking to stay ahead of the curve in this crucial sector. Finally, China’s large and increasingly affluent domestic market is already a prime market for luxury European goods ranging from luxury cars to haute couture and unique agricultural products including fine wines and meats. A freer trading arrangement could therefore be a huge benefit to European producers.
A trading partnership between China and the EU would allow both economies to compliment one another in areas where the other is lacking while providing new affluent markets for the most important products produced by both sides. By contrast, the Japanese deal is far more limiting for both sides due to the structural, societal and industrial parity between Japan and Europe.
This is not to say that the EU-Japan Economic Partnership is a bad deal, it is most certainly a step in the right direction for both sides, but if the EU truly seeks the kind of leverage against a protectionist US partner that many European leaders are quick to boast of, taking things a step further and engaging in meaningful negotiations to create a freer trading environment between Brussels and Beijing is necessary.
Once again by choosing caution over innovation and a safe present over a more dynamic future, the EU has limited its options on the global stage. It is of course never too late for the EU to now begin talks with China on a new trade deal, but clearly the impetus in Europe for such things remains beholden to a mentality of fear that is counterproductive and is in many ways protectionism by stealth.