Global Forecast (07-17-2018)


EU and Japan buck the global protectionist trend by sealing a new free trade deal

After four years of negotiations, Japan and the European Union have agreed to a free trade deal that will cover nearly 600 million people and one-third of the global economy.

Japan and the EU saw some $152 billion in bilateral trade flows in 2017. Japan is the EU’s second-largest trade partner in Asia behind China. EU-Japan trade is dominated by motor vehicles, machinery, electrical machinery, medical instruments, and chemicals.

The ‘Economic Partnership Agreement’ (EPA) will open up a new and lucrative frontier for EU farmers. Japan’s agriculture industry has long been the subject of abnormally high tariffs (30-40% on cheese; 38.5% on beef, for example). The deal will eliminate duties on up to 90% of agriculture exports from day one, opening up a new market of 127 million people for EU exporters.

The deal could have negative impacts for the car industry in the United Kingdom, but it will depend on the final text of the Brexit deal. Companies like Honda and Nissan will be under pressure to relocate facilities to within continental Europe so long as no bilateral free trade deal (or ad hoc concessions) exist between the UK and Japan.

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