The European Union and Japan are expected on Thursday to announce plans for a major new free trade agreement. The E.U.-Japanese deal, which has only been negotiated in broad terms thus far, would lower barriers to exports of cars flowing in both directions, as well as reduce Japanese barriers to imports of trains and agricultural products, including cheese and chocolate, according to media reports. It would create a free trade area similar in size to North America, which is linked by the 1994 NAFTA agreement.
If completed, the E.U.-Japan trade deal would be a sign of other top economies adjusting to a new world order in which they attempt to work around the United States instead of looking to it for direction on building global trade. Trump, with support from Congress, already ended an effort for the United States to reach a trade agreement with Japan and other Asian countries, and he has threatened to withdraw from the North American Free Trade Agreement and from a separate trade agreement with South Korea.
Amid strengthening overseas opposition, Trump faces one of the most consequential economic decisions of his tenure so far, as he considers imposing new restrictions on steel imports to protect U.S. producers — a move vociferously opposed by Germany and other U.S. allies. The Commerce Department was close to recommending new restrictions, but other top Trump advisers warned it could lead to major economic fallout. Now the decision is hanging over both the administration and the summit of global leaders.
Trump's advisers plan to push other countries at the G-20 to agree to concrete steps that would crack down on the way China exports steel, people briefed on the planning said, and if Trump is successful in this effort it could buttress his willingness to challenge other countries on a range of issues. But if the attempt backfires and numerous countries reject the U.S. push, it could further isolate the country.
The divergent trade approaches have set up the G-20 as a potential crossroads for the international economic order. Trump is attempting to leverage the United States' economic power to negotiate new deals in the country's favor, while foreign leaders appear increasingly ready to bypass the United States in favor of stronger ties elsewhere.
“There was a question mark there, as to whether or not the E.U. would be able to continue signing free trade agreements in the future,” said André Sapir, an international trade expert and a former economic adviser to the European Union’s Director General for Economic and Financial Affairs. “This indeed demonstrates that the E.U. is able to do that.”
“Going into the G-20, it’s demonstrating that indeed the E.U. and Japan want to continue to have a liberal trade agenda and show that there are other countries able to pursue this agenda without the United States,” Sapir said.
There are also signs that other nations are willing to challenge Trump more directly. German Chancellor Angela Merkel, who faces elections in September in a country where Trump is deeply unpopular, said she would press Trump about his trade threats as well as his recent decision to withdraw from the 2016 Paris climate agreement that aimed to curb greenhouse gas emissions. In advance of the meeting, Merkel and Trump discussed “global steel overcapacity” in a phone call on Monday, something that could become the top trade issue at the summit. Germany is a large exporter of steel and officials there worry they could be caught in any U.S. crackdown.
“There has been no love lost between Germany and Trump from the beginning, but now Chancellor Merkel is operating in campaign mode where all the numbers show that President Trump is deeply disliked,” said Michal Baranowski, director of the Warsaw office for the German Marshall Fund of the United States, a think tank. “The concern is certainly very high about protectionist language and potentially protectionist ideas coming from the Trump administration.”
“It is important for us to wave the flag of free trade in response to global moves toward protectionism by quickly concluding the free trade agreement with Europe,” Japanese Prime Minister Shinzo Abe said on Tuesday, according to Reuters, as he touted the potential Japan-E. U. trade pact.
Trump appeared ready for a scrap ahead of the meeting. “The United States made some of the worst Trade Deals in world history. Why should we continue these deals with countries that do not help us?” he wrote in a Wednesday morning Twitter post. That followed a Monday post in which Trump implied he might soon take action on steel, writing “Don’t like steel & aluminum dumping!”
U.S. officials have accused China — not Germany and Canada — of “dumping” excess steel on global markets in a way that drives down prices. Because China is a G-20 country, Trump could try — for the first time — to directly challenge Chinese leader Xi Jinping in person at the Hamburg meeting. The United States imports very little steel from China, but Trump administration officials say the way China produces and exports steel still hurts the U.S. steel industry because it sells it at low prices to other countries, driving down prices.
China now makes more than half of the world’s steel. Some of that steel goes to feed the factories, roads and skyscrapers that have cropped up around the country as China’s economy has grown in past decades.
But U.S. companies say that the Chinese steel boom is also due to unfair government subsidies and state ownership that protects steel mills from market forces and causes them to produce much more steel than the world needs. Much of this glut of Chinese steel ends up in overseas markets, lowering the global steel price to a point where foreign companies can’t profitably compete. In 2015, China produced 10 times as much crude steel as the United States.
“The United States stands firm against all unfair trading practices, including massive distortions in the global steel market and other nonmarket practices that harm U.S. workers,” White House National Economic Council Director Gary Cohn said. “We ask the G-20 economies to join us in this effort and to take concrete actions to solve these problems.”
U.S.-China relations are further complicated by international tensions over North Korea, after dictator Kim Jong Un's regime — to broad international condemnation — conducted a military exercise that seemed designed to demonstrate the increased range of its missile technology.
Trump took a combative posture with China ahead of the meeting, ripping the country for allegedly increasing its trade with North Korea. “Trade between China and North Korea grew almost 40 percent in the first quarter. So much for China working with us — but we had to give it a try!” Trump wrote in another Wednesday morning Twitter missive.
Trump had taken a more conciliatory approach with China in recent months, backing away from a threat to label Beijing a currency manipulator and saying he thought both countries could work closely together on a range of issues. But relations appear to have soured in recent weeks, and his Wednesday accusation that China has enabled North Korea's missile programs marks a low point between his administration and Xi.
A number of trade experts said it remains unclear whether Trump is simply threatening tariffs as a way to lure other countries to offer him concessions, or if he will follow through on new restrictions, rebuffing advice from many in his Cabinet. He has taken steps to renegotiate the North American Free Trade Agreement, and he has also said he wants a new trade deal with South Korea. But so far those efforts are only in initial stages. Global leaders have seen an opening in persuading Trump to change course, as he made a last-minute decision to renegotiate — rather than withdraw — from NAFTA after intense pressure from Canada and Mexico.
“There’s a big difference between being unpredictable with your adversaries and being erratic with your friends and allies,” said Daniel Price, former international economic affairs adviser to President George W. Bush, who helped organize the first G-20 summit in 2008.
Still, Merkel has emerged as one of the global leaders most willing to challenge Trump’s approach.
“Those who think that the problems of this world can be solved with isolationism or protectionism are terribly wrong,” she told the German parliament last week.
Trump and some of his advisers have chided Merkel over the fact that Germany exports far more goods more to the U.S. than the U.S. exports to Germany — $64 billion worth of cars, machinery and other goods in 2016.
Many trade experts believe the unbalanced trade is due in large part to Germany’s use of a shared currency with the rest of the euro zone, which ends up making the euro cheaper than a strong economy like Germany would otherwise have. German officials have tried to explain this dynamic to Trump and his advisers for months, but Trump administration officials believe Germany could do more to boost their imports.
The Germans argue that their companies, including luxury automakers, invest heavily in the United States, employing more than 100,000 Americans.
Before his inauguration, Trump had threatened BMW with a 35 percent tariff over its plan to build a new plant in Mexico. And on his last trip to Europe, at a meeting of the Group of 7 in Italy, Trump told European leaders that the Germans were “very bad” on trade. “We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change,” Trump tweeted in late May.
Trump ran for his election by vilifying China’s trade practices, and he could try to use the G-20 summit to try to isolate Beijing over the way it produces and exports steel. Trump softened his criticism of China in the early months of his term, but in recent weeks his administration has stepped up criticism of the country for human rights violations and failing to help with North Korea.
G-20 meetings, which are held once a year in a rotation of countries, typically end with a joint statement from every nation about a range of issues that can include economic policy, international assistance and security. Officials are likely to face strains as they try to cobble together the joint statement — known as the “communique” — for this meeting, because Trump could easily block any language that he feels try to box him in on his trade or climate initiatives. But Trump could also risk alienating the White House from foreign leaders who have often looked to the U.S. for leadership on all of these issues, particularly as he is seeking more influence in global security and counterterrorism efforts.
Merkel is expected to also serve as Trump’s lead antagonist on climate issues, following his June announcement that he was beginning the process of withdrawing from the Paris agreement. The announcement divided White House officials, some of whom opposed the move, and it was condemned by numerous world leaders, including those in China, Canada and the United Kingdom.
But since then, top White House officials have defended Trump’s decision, saying it represents his focus on helping protect U.S. jobs and not succumbing to greenhouse gas targets that could lead to regulations.
“He cares very much about the climate,” Cohn said, speaking of Trump. “He cares about the environment. But he has to enter into a deal that’s fair for the American people, the American workers. He’s done everything he’s done based on job creation, economic growth in the United States.”
This is a message Trump and his advisers are expected to make again at the G-20 meeting in the coming days when they are challenged by other leaders.
Trump leaves for the G-20 meeting on Wednesday and will first stop in Poland.
James McAuley contributed reporting from Paris.