Further evidence there will be no further engagement with China surfaces in an announced specific shift in directive from President Trump today focusing Commerce Secretary Wilbur Ross and USTR Lighthizer on a sector, not a specific nation.
The auto industry is the key sector on two specific trade fronts: the EU trade reset and the ongoing negotiations with Japan. Both trade agreements center heavily on the auto-sector; and both Japan and the EU have cemented intransigent trade positions.
Enter President Trump to cut the Gordian knot.
It’s a small but important note that President Trump had previously assigned geographic trade responsibilities. Wilbur Ross has the EU as his primary focus and Robert Lighthizer has authority over Asia. Today the White House connects the objective of both Ross and Lighthizer as President Trump instructs the U.S. Trade Representative to engage in discussions around the specifics of the auto-sector:
White House – […] Following an extensive review of the Department of Commerce’s Section 232 automobile report, President Trump today issued a proclamation directing the United States Trade Representative to negotiate agreements to address the national security threat, which is causing harm to the American automobile industry. (more)
The President has designated the auto industry as a critical component of national security [More Here]. With Ross’s report in hand, the possibility of increasing tariffs on foreign automobiles is the leverage POTUS gives to Lighthizer along with the mandate to engage.
This sector-specific approach makes buckets of sense when we consider the intransigence of both Japan and the EU on the larger trade issues. [Note: in this example the EU is controlled almost exclusively by Germany and Angela Markel.] Interestingly, Japanese Prime Minister Shinzo Abe knows President Trump as a friend, and they both respect each other immensely as trade and economic strategists. Merkel, not-so-much.
Prime Minister Abe is a tough adversary for President Trump because it’s like having to negotiate with a brother/competitor who really understands your strategies.
Trump knows the EU pressure points and he’s pre-constructed the Section 232 review for just this purpose. Quite simply wherever the German auto-industry goes, so too goes the fortunes of German political leadership.
As a result, unless the EU is going to align with communist China, the EU cannot lose U.S. market access.
There is a possibility that Germany will force the EU to economically align with China; that is part of the current geopolitical dynamic taking place over the tech industry. However, PM Shinzo Abe, will never allow the Japanese economy to be held captive to the influence of China. So each trade partner involved in the auto-sector may diverge on that key issue.
Merkel and the EU may decide manufacturing exports to China are worth more to them than manufacturing exports to the United States. However, as Trump pummels the Chinese economy, he is also changing the dynamic of possible future benefit within the mind of those constructing the EU economic plan.
A weakened (more poor) China presents a less valuable economy for exported consumer goods. As China devalues their money to retain export leverage, they simultaneously drive up import costs. Those German cars become much more expensive and the Chinese consumer won’t be able to afford them. It’s an interesting dynamic.
There’s always been a good chance that President Trump would apply auto tariffs on the EU in order to leverage trade reciprocity, eliminate non-tariff barriers and protectionism, and simultaneously force Germany to pay for their own NATO defenses.
However, the potential for auto tariffs on Japan has been more singular in focus. Trump wants fair and open access for U.S. agriculture goods as a hedge against China refusing to purchase. President Trump was always positioning Japanese auto sector tariffs as straight one-for-one leverage toward more exports. Trump doesn’t look at Abe’s cars as anything other than ordinary leverage toward a traditional trade deal.
Guess what? Shinzo Abe knows this…
Like I said, it’s like negotiating a better position with your brother as your competitor… he knows your objectives. Cue the audio visual:
Japan has agreed to lift longstanding restrictions on American beef exports, clearing the way for U.S. products to enter the market regardless of age, the U.S. Department of Agriculture announced Friday.
The news comes on the heels of other important trade developments on Friday, including the Trump administration’s plans to delay auto tariffs on the EU and Japan and lift steel tariffs on Canada and Mexico.
In 2005, Japan imposed restrictions on cattle over 30 months old for U.S. beef imports in response to the outbreak of bovine spongiform encephalopathy, sometimes known as mad cow disease.
According to the USDA announcement, Japan agreed to remove that age limit for U.S. beef imports. The new terms, which take effect immediately, allow U.S. products from all cattle, regardless of age, to enter Japan for the first time since 2003, the government said.
“This is great news for American ranchers and exporters who now have full access to the Japanese market for their high-quality, safe, wholesome, and delicious U.S. beef,” Agriculture Secretary Sonny Perdue said in a statement. “We are hopeful that Japan’s decision will help lead other markets around the world toward science-based policies.”
Trust me… Grab a Snickers with these two challenging each-other…. it’s gonna be a while.