World trade continued to plunge into chaos this year, as U.S. President Donald Trump continued to petrify trading partners around the world with his unpredictable presidency.
Even though the U.S. and China appear to have taken a respite from their trade war following a partial agreement this month, 2019 was a volatile year for global trade.
Japan was no exception.
For sure, Tokyo made progress by sealing a trade deal with the U.S. and seeing its economic partnership agreement with the European Union take effect. But the government’s decision to tighten export controls on South Korea this summer set off an economic scuffle, exacerbating already tense bilateral relations. And the push to seal the Regional Comprehensive Economic Partnership — an ambitious Asian initiative to create what could become the world’s biggest free trade bloc — came to a standstill after India opted out.
Throughout next year, it is unlikely Tokyo will get much relief.
“Basically, I think this year’s trend will continue through next year,” said Junichi Sugawara, a senior research officer at the Mizuho Research Institute specializing in trade policy. Sugawara says structural problems will remain as Trump continues targeting America’s biggest trading partners.
Starting in summer 2018, the head-to-head collision between the largest and second-largest economies devolved into a messy tariff war, with each side racing to slap steep tariffs on the other’s imports.
In the latest round, the U.S. was supposed to levy fresh tariffs on more than $100 billion worth of goods from China on Dec. 15. But at the last minute, the two sides agreed to effectively hit pause.
The economic consequences have been severe. In November, the United Nations found the trade war cost China $35 billion in the first half, with exports to the U.S. down 23 percent in November compared with the same month the previous year.
“Overall, the results indicate that the United States tariffs on China are economically hurting both countries,” according to the U.N. study. “United States losses are largely related to the higher prices for consumers, while China’s losses are related to significant export losses.”
Even if the U.S. does secure a trade agreement with China, Washington will move on to its next targets, the European Union and the United Kingdom, which is on course to exit the EU.
“As for the U.S. and China, I think (the situation) will continue to ebb and flow. Even if they reach a partial agreement at some point, the U.S. could impose tariffs a few months afterward if and when Trump criticizes China,” Sugawara said before the partial agreement was reached. “(U.S.-China and U.S.-EU) trade issues will create situations that cast dark clouds over the global economy.”
America’s domestic politics will likely influence the future of its trade negotiations.
As Trump seeks re-election, he may employ inflammatory rhetoric to woo voters, which could instill further uncertainty among U.S. trading partners and affect the outcome of more comprehensive trade talks with China and the EU.
Amid the chaos, perhaps the silver lining is that the U.S. and Japan reached a trade agreement at an unusually fast pace. Japan hopes the deal, which takes effect Jan. 1, will remove it from Trump’s crosshairs by lowering tariffs on American farm goods to the same level set by the signatories to the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP.
In February, Japan’s EPA with the EU took effect, resulting in the removal of tariffs on over 90 percent of EU imports to Japan, according to the EU-Japan Centre for Industrial Cooperation.
A senior Foreign Ministry official told reporters this month that making progress on RCEP is “its next big task” despite the setback from India’s withdrawal. Completing the 16-nation pact is viewed as critical for maintaining momentum on free trade. The members include Japan, China and ASEAN.
Still, the major predicament for Japan is its troubled relations with South Korea. This summer, the Ministry of Economy, Trade and Industry announced it would tighten screenings of exports of three chemicals crucial to South Korea’s high-tech industry — fluorinated polymide, resists and hydrogen fluoride.
Despite pushback from Seoul, Tokyo doubled down by downgrading its trade relationship status with South Korea. With this action, a diverse range of exports to South Korea that could potentially be used to make weapons of mass destruction and conventional weapons have to go through additional and stricter screenings.
South Korea responded with harsh rhetoric and vowed retaliatory measures. Japanese beer exports to South Korea, for example, dropped to zero in October due to a persistent boycott campaign.
In what could be a potential breakthrough, export control officials from the two countries met in Tokyo this month for the first time in 3½ years. But with animosity and mistrust running high, it is unclear when the economic dispute will come to an end.
Japan contends it took the measures due strictly to a “significant loss of trust.” South Korea alleges retaliation and a deliberate attempt to cripple its economy over political and historical grievances.
Riley Walters, a policy analyst on Asian economics and technology at the conservative Heritage Foundation in Washington, said while METI’s officials make a good case for being skeptical about South Korea’s export control system, the timing of its actions — especially the speed at which the trade restrictions were ramped up — was “suspicious.”
“Obviously, I do believe that trade has become a lot more politicized than it used to be,” Walters said.