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As tensions with US worsen, Europe courts new partners

(From left) European Commission President Jean-Claude Juncker, Japan’s Prime Minister Shinzo Abe, and European Council President Donald Tusk at Tuesday’s signing event.
(From left) European Commission President Jean-Claude Juncker, Japan’s Prime Minister Shinzo Abe, and European Council President Donald Tusk at Tuesday’s signing event.(Koji Sasahara/Pool/EPA/SHUTTERSTOCK)

NEW YORK — President Trump is inciting a trade war, undermining NATO, and painting Europe as a foe. It’s no wonder, then, that the European Union is looking elsewhere for friends.

On Tuesday in Tokyo, it signed its largest trade deal ever, a pact with Japan that will slash customs duties on products like European wine and cheese, while gradually reducing tariffs on cars.

The agreement will cover a quarter of the global economy — by some measures the largest free trade area in the world — and is the latest in a string of efforts either concluded or in the works with countries like Australia, Vietnam, and even China.

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The deal with Japan — and the others being negotiated — point to a more assertive Europe, one that is looking past the frosty ties with the United States, and even the upcoming withdrawal of Britain from the bloc. In recent months, EU leaders have voiced ever more confident rhetoric in favor of free trade, refusing to back down in the face of the threat of tariffs from Washington and instead aggressively courting new relationships.

But no matter how many barriers to international commerce the European Union manages to tear down, its leaders will not change one economic fact of life: The United States remains the Continent’s largest trading partner. There is no escaping the damage from Trump’s campaign against imports like cars and steel.

“The United States is the one big market,” said Holger Schmieding, chief economist at Berenberg, a bank based in Hamburg. The other accords, he said, are “damage limitation rather than compensation.”

European officials began intensifying efforts to strike trade agreements with other countries after Trump’s election delivered the coup de grâce to negotiations on a far-reaching deal with the United States. Negotiators from both sides of the Atlantic had worked since 2013 to eliminate tariffs and harmonize regulations for products likes cars and pharmaceuticals. The talks stalled during the end of the Obama administration and were postponed indefinitely at the end of 2016.

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Europe did not stand still, continuing instead to pursue other deals.

While the president was threatening to rip up the North American Free Trade Agreement, the European Union was putting final touches on a free-trade pact with Canada. It took effect late last year.

Europe also reached a deal in principle with Mexico to update an existing free-trade agreement, one that should be finalized by the end of the year. Accords with Vietnam and Singapore are going through the final stages of approval.

Negotiations are also in progress between the European Union and a long list of countries that includes Australia, Chile, Indonesia, New Zealand, Tunisia, and the Mercosur countries — Argentina, Brazil, Paraguay, and Uruguay. The European Union and India have restarted talks that stalled in 2013.

“It has been a very busy month,” Cecilia Malmstrom, the European commissioner for trade, said in June after returning from a visit to Australia and New Zealand.

Trade deals take years to negotiate and work on the most recent pacts started before Trump was elected. The talks with Japan began in 2012. But Pascal Lamy, former director-general of the World Trade Organization, said that the EU’s diplomatic offensive “fits the notion that you don’t need the US to do open trade.”

The European Union is even negotiating with China. European officials share Americans’ wariness about Chinese intentions. And they do not want to become dependent on China, even though it is on track to surpass the United States as Europe’s largest trading partner in the coming years.

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Still, they are taking a different approach.

Washington is threatening Beijing with tariffs that could encompass nearly all of China’s imports into the United States as a way to bring the country to heel.

Officials in Brussels, by contrast, are negotiating an agreement that would give their companies more control over investments in China, for example by allowing them to own their operations outright rather than requiring them to work with local partners.

China’s ability to cozy up to the European Union is limited, however, by the mistrust that has marked the two powers’ recent relations.

They have sparred over whether sales of Chinese-made solar panels in Europe amounted to dumping. At a meeting last year, they failed to issue a joint statement on climate change because they disagreed on whether China should be considered a “market economy.” The designation would entitle the country to preferential treatment before the WTO.

Last week, German Chancellor Angela Merkel met in Berlin with Li Keqiang, the Chinese premier. They watched as Chinese and German companies signed numerous cooperation agreements. One will allow BASF, the German chemical producer, to spend $10 billion building a wholly owned plant in southern China.

That deal also underscores how slow China has been to open up, though.

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“There has been a big shift in the messages coming back from European companies based in China, who used to be a strong pro-China lobby but now are very critical,” said Mark Leonard, co-founder and director of the European Council on Foreign Relations.

After China, Japan is the EU’s second-biggest trading partner in Asia. The agreement signed Tuesday in Tokyo by Prime Minister Shinzo Abe of Japan and European Council President Donald Tusk will eliminate 1 billion euros, or $1.2 billion, in tariffs that European companies pay per year.

Once the treaty takes effect in 2019, it will lead to an increase in trade of 16 percent to 24 percent, according to estimates from the European Commission, the executive arm of the European Union.