As Europe and America separate from China, Asia becomes integrated
Commercial structures evolve and profoundly. The European Union (EU) and the United States have agreed to advance their decoupling with China. Meanwhile, the deals in Asia have opened the door to considerably more trade between the dominant economies in that region, South Korea, Japan and China – substantially, if not immediately.
The United States and the European Union recently reached an agreement that excludes China and could set the tone for more such agreements. Washington lifted the steel and aluminum tariffs imposed by Donald Trump on the EU, while the two sides joined in the creation of what their press release describes as a “global agreement on sustainable production of steel and aluminum ”. By adding that the deal encompasses trade “between like-minded nations,” these partners have made it clear their goal of excluding China. EU Trade Commissioner Valdis Dombrovski stressed that the agreement “would restrict market access for non-participants”. President Biden was more direct, although less elegant. “These agreements,” he said, “[will] restrict access to our markets for dirty steel from countries like China and other countries that dump steel into our markets. “
While the EU and the United States have joined hands on this issue, Westerners still hold grudges between them. Europeans are angry that Biden’s White House refuses to lift Trump’s claim that tariffs were a matter of national security. Concretely, the designation may have little meaning, but it does not suit European leaders. Biden also didn’t just lift the tariffs. A 25 percent duty will remain on any European steel shipments to America in excess of 4.4 million tonnes. This cap also has little practical effect, since sales of European steel to the United States, according to the European steel group Eurofer, have never exceeded 4.1 million tonnes. Nevertheless, the condition still worries Europeans, who see it as a sign that Washington is not fully engaged.
While the White House and Brussels, despite their differences, have succeeded in plotting against China, Beijing has signed attractive trade deals in Asia. The basis for new trade deals was actually laid late last year when China and the ten members of ASEAN – including Japan, South Korea, New Zealand and Australia – signed what they called the Regional Comprehensive Economic Partnership (RCEP). This pact established the very first free trade agreement (FTA) between China and Japan and between Japan and South Korea.
Prior to the signing, trade between these economic giants was governed entirely by the Most Favored Nation (MFN) standard of the World Trade Organization (WTO). Under this earlier agreement, trade between these nations was relatively limited. According to figures from the International Monetary Fund (IMF), China captured only 23% of imports from Japan or South Korea, while Japan captured only 22% of imports from China and a little more than 25% of those of South Korea.
Now China is committed to drastically reducing tariffs on Japanese products. Last I heard, just 7.8% of Japanese goods entered China duty-free. Japan has been more open, allowing some 60 percent of Chinese products to enter the country duty-free. But under the new agreement, the two countries have committed to progressive tariff cuts so that eventually 85% of Japanese products will enter China duty-free and about 88% of Chinese products will enter duty-free. customs in Japan. These shipments will include minerals, textiles, chemicals and metals from Japan and plastics, rubber products, textiles and chemicals from China. Similar agreements have been concluded between Japan and South Korea as well as between South Korea and China.
Overall, intra-Asia trade is expected to increase significantly as a result, perhaps enough to replace what China could lose in the west. But we still don’t know how things will turn out. The agreement provides for the most gradual adjustments. The planned tariff reductions will occur in stages at the 11e, 16e, and 21st years of entry into force of the RCEP agreement. This is a long time and leaves plenty of room for readjustment and renegotiation before these countries approach one of the ambitious goals of the agreement. Yet with the West’s apparent effort to exclude China, the future would appear to contain a Chinese trade hub to Asia.