EU-Japan axis emerges to counter China’s BRI

Donald Trump is miffed that his trade deal with Japan made so few headlines, failing to knock his impeachment troubles off front pages around the globe.

Perhaps it’s because Japanese leader Shinzo Abe is seeing the value in expanding his relationships beyond the erratic Trumpian United States to the other great democratic collection of economies: Europe.

The US president surely noticed that Abe signed a giant trade deal with the European Union, a pact that went into effect this February. Combining the world’s largest borderless trade zone and its third-largest economy, it’s the world’s biggest free-trade agreement.

But with Team Trump fighting for its political life, it may have missed two recent Abe wins with the EU – significant ones.

One involves an agreement to ease post-Fukushima restrictions on food imports from Japan. It’s not only a coup for Japanese farmers, but a boost for Brand Japan, which took a hit after a March 2011 earthquake caused the worst nuclear crisis since Chernobyl.

This suggests the EU just paved the way for others to normalize their Japanese agricultural trade flows.

‘Free and open’ versus BRI

The even bigger win is a massive infrastructure deal to increase connectivity between Asia and Europe. In other words: Take that China! Consider this Abe’s riposte to Xi Jinping’s colossal Belt and Road Initiative. Beijing has used it, to great effect, to curry favor around the world.

While neither Abe nor European Commission President Jean-Claude Juncker referred specifically to China when signing the deal recently, Asia’s biggest economy was written between the lines in bold font.

China has the early-mover advantage. But Abe has wisely been positioning Japan as a “quality” infrastructure alternative. China has a well-earned reputation for sub-par and highly-polluting projects that come with very big strings attached.

Juncker echoes Tokyo’s talking points when he explains that “connectivity must be sustainable in financial terms. We must bequeath to the next generation a more interconnected world, a cleaner environment and not mountains of debt. It’s also a question of creating interconnections between all countries in the world and not merely dependence on one country.”

That “one” country, of course, is President Xi’s. Yet as Xi works to recreate the Silk Road of old, Abe positions Tokyo as a developed-world bastion of “free and open” trade routes. Those routes are, wisely, leading Japan to Europe. Japan and the EU joining forces creates a scale Beijing can’t ignore.

And this is at a moment when Trump’s America is building walls.

Abe hedges against Washington

You can bet that in his next bilateral meeting with Abe, the Art-of-the-Deal president will try to coax Abe to pivot more forcefully toward America.

Abe will need to tread carefully, given Trump’s thin skin and itchy Twitter trigger finger, for Japan is uniquely reliant on Washington’s security umbrella.

That explains, in part, why Abe’s government entered into a number of defense cooperation initiatives since 2017. It’s complicated for Japan, given the nation’s pacifist postwar constitution. Yet such ties strengthened in February with the “strategic partnership agreement” with the EU, which includes provisions for security-related cooperation, including potential military exercises.

With Trump in political chaos at home and waging trade wars everywhere, Japan is right to be limiting its exposure to Washington. Last week, Trump slapped 25% tariffs on European wine, cheese, suits and other items as part of US anger over subsidies for airplane manufacturers.

As Trump burns bridges, Abe is going to build them, literally, with the EU. And, in the process, buttress Tokyo’s geopolitical relevance globally.

Tokyo joins global playing field

Particularly in promising Southeast Asian economies like Vietnam and Myanmar. Tokyo-backed projects are also giving a boost to infrastructure investments from Indonesia to Malaysia to the Philippines to Thailand. As of June, Fitch Solutions put the dollar amount at about US$367 billion worth of projects in a region awash with Belt and Road largess.

Africa, too. In August, Abe’s government rolled out plans to invest $20 billion in the continent over the next three years. Though considerably less than the $60 billion China is pumping into Africa, it suggests rising Japanese ambitions. It will help narrow Africa’s financing gap and open paths for Japanese companies to tap the region’s rapid growth. Toyota Motor, for example, is building a giant factory in Ivory Coast.

This goes for Europe, too. China claims its trade with the roughly 130 countries that signed on to its Belt and Road juggernaut tops US$5 trillion. Beijing’s outbound direct investment related to the project has already topped US$60 billion. The “soft power” dividend Beijing has enjoyed is turning heads in Brussels.

The EU provides billions of dollars of grants, loans and various other kinds of development assistance. Yet it lacks the scale or splash of Xi’s ambitions to increase China’s global footprint. As one senior EU official told The Japan Times last month: “China woke us up to realize that there is something that we’re already doing but they are using it for their geopolitical objectives.”

Those objectives also worry officials from Tokyo to Jakarta. Governments fear that some of the quid pro quos involve military interests. Neighbors worry that Cambodia, for example, may be allowing Xi to build a naval base. That goes, too, for atolls and rock formations situated around the South China Sea that Beijing is using to construct airfields.

Japan sees strategic advantages in drawing the EU eastward. At the moment, the EU and Asia do nearly $1.8 trillion of annual trade and generate about 60% of world gross domestic product. It’s estimated, meanwhile, that Asia will require about $1.4 trillion of infrastructure projects to maintain growth and reasonable rates of productivity.

Europe’s cash and economic heft makes it easier to reduce China’s odds of monopolizing projects. Or as Abe puts it: “Whether it be a single road or a single port, when the EU and Japan undertake something, we are able to build sustainable, rules-based connectivity from the Indo-Pacific to the Western Balkans and Africa.”

Japan and the EU can also exploit the Trump era, which has America turning inward and disinclined to finance development. That provides greater space for officials from Brussels to Tokyo to make inroads near and far.

In its annual white paper on defense, released last month, Abe’s government warned that “China engages in unilateral, coercive attempts to alter the status quo based on its own assertions that are incompatible with the existing international order.”

The only way to counter China’s increasing influence is to meet Xi’s government on the playing field. Abe is doing just that in ways that widen not just Japan’s alliances, but its global footprint.

And it’s about time.