The Trump administration is turning to allies in Asia and Europe for trade deals as U.S. relations with China deteriorate and the two world’s largest economies exchange tit-for-tat tariffs that risk damaging global commerce.
President Trump signed a revised free-trade pact on Monday with South Korea, as he steps up efforts this week to show he can strike new market-opening deals and isn’t antagonistic to trade. Mr. Trump also hopes by Wednesday to persuade Japan to enter formal bilateral trade talks, part of a commercial diplomacy effort this week by the president and his advisers on the sidelines of United Nations meetings in New York.
Trump aides also have meetings planned with their European Union counterparts to advance a trade-expanding framework unveiled in July.
“In addition to this deal, we have many other deals in the works—reciprocal deals,” Mr. Trump said as he signed the Korea pact.
The moves come as Mr. Trump escalates his trade fight against China, with new 10% taxes on $200 billion in Chinese exports taking effect Monday. Beijing has retaliated with tariffs on $60 billion in American-made goods. The U.S. administration is expected soon to explore penalties on $267 billion more in Chinese products, covering virtually all Chinese goods sold in the U.S.
This week’s efforts also coincide with what appears to be a rough patch in Mr. Trump’s efforts to rewrite the North American Free Trade Agreement. The administration has been pushing Canada to join by Sept. 30 a new Nafta framework set last month between the U.S. and Mexico. But talks with Ottawa broke down last week with no resolution on a number of sticking points. No new high-level negotiations were scheduled as of Monday afternoon.
Mr. Trump took office last year vowing to shake up the global free-trading system. He’s done so in many ways, with a broad array of tariffs imposed not just on China but on allies around the world, and with threats to rip up existing trade deals and pull out of the World Trade Organization.
But he has faced a backlash from U.S. business and farm groups worried about the costs to consumers and exporters, and from lawmakers in his Republican Party facing tough congressional elections in November.
The White House has countered those concerns by insisting Mr. Trump’s goal is preserving and expanding, not contracting, trade—albeit on terms he considers more fair to the U.S., and in ways that he says would reduce the American trade deficit with other countries.
The Korean deal is his first such concrete effort. Speaking in advance of the signing, Mr. Trump told reporters that new pact was “a long time coming,” calling it a “basic redoing” of the old accord. He described the original deal as “a very unfair agreement for the United States.”
South Korean President Moon Jae-in touted the pact, saying uncertainty surrounding it had been eliminated.
But as an early indication of administration policy, the accord suggests Mr. Trump may be willing to accept more modest changes than his public demands imply, at least with trading partners outside China.
“The changes made are meaningful but modest,” said Wendy Cutler, who negotiated the original U.S.-Korea deal, known as Korus, under Presidents Bush and Obama. “The president set very high expectations that this was a terrible agreement and he was going to totally change it and reduce the bilateral trade deficit, but this seems to be pretty traditional agreement,” she added. Ms. Cutler also noted that “Korea came in with its own demands, and the U.S. was responsive—the U.S. gave as well as got.”
The biggest changes involve the auto industry. Seoul agreed to double the cap on the number of vehicles each U.S. automaker can sell annually in South Korea—from 25,000 to 50,000—for cars that meet U.S. safety rules, not Korean ones. And it agreed to let the U.S. keep in place until 2041 a 25% tariff on light trucks. Under the original deal, that was slated to be phased out over the next three years.
Both of those changes will have little immediate impact. None of the Big Three U.S. automakers had filled even half their quotas last year, and combined they exported just over 20,000 units to South Korea. Korean automakers currently don’t sell pick-up trucks in the U.S. Hyundai Motor Co. has announced plans to start selling a pick-up in the American market, but hasn’t said if it would be manufactured in South Korea, at its Alabama factory, or elsewhere in North America.
Despite Monday’s signing ceremony between Mr. Trump and President Moon Jae-in, it remains unclear when the pact will actually take effect. While the deal doesn’t need congressional ratification in the U.S., it does require legislative approval in South Korea. Korean lawmakers have warned that they won’t sign off without assurances that their automakers would be spared new restrictions in the event Mr. Trump follows through on a threat to impose global auto tariffs in the name of national security. That guarantee isn’t part of the agreement being signed Monday.
Mr. Trump’s other big trade focus this week is Japan. In advance of a dinner meeting with Prime Minister Shinzo Abe Sunday night, the president tweeted that the two leaders would be “talking Military and Trade.” He added: “We have done much to help Japan would like to see more of a reciprocal relationship.”
Since the start of his administration, Mr. Trump has pushed Mr. Abe to open talks on a free-trade agreement, along the lines of Korus. Mr. Abe has resisted, trying instead to lure Mr. Trump back into the 12-nation Trans-Pacific Partnership negotiated by President Obama that included both countries. Mr. Trump pulled the U.S. out of TPP at the beginning of his presidency, saying he preferred bilateral trade deals over multilateral ones.
Mr. Trump’s threat of global auto tariffs—announced in May—has put new pressure on Japan, the largest exporter of autos to the U.S. Many Japanese officials have concluded that some kind of new formal trade talks may be the price they have to pay to win protection from those tariffs, say people familiar with the discussions.
Mr. Trump’s U.S. trade representative, Robert Lighthizer, and Japanese economy minister Toshimitsu Motegi are scheduled to talk in New York on Tuesday. Messrs. Trump and Abe have another meeting scheduled Wednesday, and may try to announce a new trade negotiating framework then, these people said.
Japanese officials are hoping to emerge with an arrangement along the lines of the one that Mr. Trump reached at the White House in July with European Commission President Jean-Claude Juncker—a joint statement that was broad in its goals of lowering trade barriers between the two sides, but vague on specific goals and timetables. That was sufficient for Mr. Trump to promise to avoid imposing car tariffs on European automakers as long as negotiations were ongoing.
The European talks fall far short of a wide-ranging free-trade agreement, and are currently focused on modest measures like cooperating on regulatory standards. An official free-trade agreement sets rules governing virtually all commerce between two countries. By contrast, the U.S.-Europe talks just touch on select specific sectors and practices.
Mr. Abe wants to avoid opening the door to a full-fledged U.S.-Japan free-trade-pact because he fears it would undermine his efforts to foster the advance of an Asian regional trade bloc. He succeeded in getting the remaining 11 TPP countries to stick together even after Mr. Trump’s withdrawal, and member legislatures are currently in the midst of ratifying the plan.
Mr. Abe also fears that Mr. Trump will press him to offer deeper, politically sensitive, concessions in opening Japan’s agriculture market than he did in TPP, and take further steps to limit auto exports.
Meantime, the top European trade official, Cecilia Malmström, on Monday described the EU-U.S. talks as “sometimes tortuous” but she said they are “moving forward” towards a “more limited trade agreement” and ways to facilitate gas imports from the U.S. and reducing bureaucratic hurdles to trade. “Our people are talking to each other. We will have another meeting in November,” said Ms. Malmström, who is in New York for the U.N. and related meetings.
Ms. Malmström highlighted one area of progress—joining forces with the U.S. and Japan to overhaul the rules of the WTO in order to limit China’s use of state subsidies and “forced technology transfers” imposed on Western companies when investing in China. Ms. Malmström set to meet U.S. and Japanese officials Tuesday to draft WTO proposals to that end.
—Valentina Pop in New York, Kwanwoo Jun in Seoul and Chester Dawson in Detroit.
Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Vivian Salama at vivian.salama@wsj.com
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