A major free trade agreement between Japan and the European Union seems to be materializing fast if the negotiators' statements are anything to go by. If the deal does become reality, this could be a game changer for global financial markets in general and the markets of these countries, in particular.
Supporting open trade
Japan is one of the strongest markets in the global economy right now, and the European Union brings its own considerable strengths into play. If these two players finalize the trade agreement, this will be a powerful and most significant indication that they are in full support of free and open trade policies. This will set the stage for world economies to align by their stance. Experts predict that the deal if it goes through, will be a major step forward in ending protectionism in global trade circles.
To give an idea of how significant the trade agreement could be, it is necessary to understand that Japan and the EU combined are responsible for over a quarter of the total economy across the globe. Look at last year's number alone, we see that these two countries traded some $140 billion worth of goods. This will improve if the agreement is finalized.
Both countries have their terms laid out
Any trade agreement will have to result in substantial benefits to both countries and it appears as if both Japan and the EU have outlined their terms quite clearly. Japan is keen to eliminate high tariffs on products like automobiles and electronics imposed by the EU. The EU is happy to ease the entry of Japanese companies into its frontiers by reducing regulatory requirements. The EU is also keen to enhance market access to certain agricultural products.
Cause for concern for the U.S.
While this could be a turning point for both the Japanese and the EU economies, it is not good news for the U.S. Once the agreement is finalized, export of agricultural products to Japan from the EU will be eased and costs will also be lowered. This will adversely impact the demand that some U.S. businesses enjoy from the Japanese. This may not have been a risk if the U.S. had stayed in the Trans-Pacific Partnership which was designed with the goal of improving trade relations with the Pacific Rim countries.