U.S. Already Counting Cost of Blocked-Off Stance as E.U.-Japan Trade Pact Goes Ahead

 | Jul 06, 2017 | 10:00 AM EDT
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Donald Trump is prepping this week to shoulder barge his way in front of 19 other leaders at the Group of 20 meetings due to take place in Hamburg, Germany. He'll make certain he's front and center of any photo opportunity. But he's relinquishing center stage metaphorically in terms of the U.S. presence on the world stage.

The United States is already counting the cost of its isolationism. The G20 summit on Friday and Saturday will ram home the gulf in outlook between Trump and his peers on issues like free trade, immigration and climate change.

Japan and the European Union on Thursday signed a trade deal that will eliminate tariffs between the two on 95% of products. The pact will create a trade bloc to rival NAFTA.

What's more, German Chancellor Angela Merkel plans to use the G20 meeting, which draws together the most significant economies of the world, to push for a free-trade zone among those nations. And she'll do it without Trump if he balks.

Call that putting "America Last." The United States is already well behind most developed nations on signing free-trade pacts. Trump may think the United States is better withdrawing within its own borders and just doing business with itself. But that's not the way the world works anymore.

Among the headlines of the E.U.-Japan deal is that tariffs of up to 10% on shipments of Japanese cars into Europe will end over the next seven years. Japan will drop tariffs on E.U. farm goods, for instance removing them altogether on hard cheeses such as Gouda and cheddar over 15 years, and eliminate them for 100,000 tons of soft cheese such as Camembert, feta and mozzarella.

Getting Japan to budge on agriculture is like pushing the Pyramids, since the elderly farm lobby is an immovable force in Japanese politics. But Tokyo will also lower a 38% import tax on beef from the European Union to 9% over the next 15 years. Pork will fall even further, while wine and spirits will have zero-tariff entry.

Trump's first significant action on taking office was to withdraw the United States from the Trans-Pacific Partnership, which would have set up free trade with Japan and 11 other nations. The E.U.-Japan deal was actually delayed because Japanese negotiators were working on the TPP. So Trump's flick of the pen actually brought today's deal to fruition.

Trump talks tough on trade, but he's hurting U.S. companies. When Ford (F) was mulling moving production of its Focus cars to a new factory in Mexico, low wages weren't the only or in fact the chief consideration. 

The company would have saved $600 per car by using cheaper labor to build a small car in Mexico, as I explained after Ford elected to send production to China instead. But because Mexico has better trade terms with Europe than the United States, Ford would have saved $2,500 in tariffs by selling a Mexican-made vehicle in Europe, instead of one produced north of the border. 

With the new E.U.-Japan deal, U.S. cars will now be at a further disadvantage over Toyota Motor (TM) and Honda Motor (HMC) . Luxury cars such as Toyota's Lexus line will get a particular boost from the lack of E.U. import duty, experts say. 

We'll see where Merkel goes with the G20 summit on her home turf. But as the queen of the European Union, she'll be charming many more folks than Trump, who will be lucky if he gets out of there without patting Merkel on the backside. He already cancelled a prospective trip to Britain because of the bad reception his staff told him -- carefully, I imagine -- that he would receive.

Merkel said after a similar meeting of the G7 most industrialized nations in May that Europe would have to "really take our fate into our own hands" since Trump and the United States are no longer reliable allies.

"We have to know that we must fight for our future on our own, for our destiny as Europeans," Merkel added.

Not that Trump is alone on an idiotic stance when it comes to free trade. My countrymen from the United Kingdom are equally good at silly walks and stances, as anyone who has ever watched John Cleese and Monty Python will attest.

Given the timeline to get the E.U.-Japan trade pact approved, it's highly likely that Britain will have left the European Union by the time it comes into effect. Then Britain, too, will be counting the cost of lost yen as a result of Brexit -- one of the worst political decisions my British peers have ever made.

I'm in Britain right now for one of my two-in-a-decade trips, and it's obvious how much of a mess Brexit is going to be. London is one of the most cosmopolitan cities in the world, but now it will be taking a step backward that will rob it of the most-creative minds in the European Union. 

Britain has agreed to allow three million E.U. citizens to stay in the country after Brexit if they apply for "settled status." If they want to bring their spouse with them, they'll have to be making at least £18,600 ($24,00) per year to show they can support them, which seems fair enough.

Those E.U. citizens who have five years of residence in Britain can file right away for permanent residence, but the conditions they must meet have not yet been made public. Those building up to the half-decade milestone will be allowed to stay until they reach that point. But after the cutoff, new arrivals won't have that eligibility.

Like free trade, the free movement of labor makes for more efficient markets, and I think rewards the nations that can draw talent from elsewhere in the world. Immigrants work as hard as anyone, keen to forge a presence in their new nation and feed mouths back home.

But the Brits will lose any of that edge once they lock the door on the European Union's best and brightest minds. And they, too, are making it tougher on their own companies to trade with the rest of the world.

When it comes to seating for the meals at the Hamburg meetings, Merkel and the other 17 leaders could consider putting Trump and British Prime Minister Theresa May on their own table in the corner. Forget the heel-draggers. It's time for the rest of us to move on.

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