Merz invites Japan to back trade alliance as China asks Germany to be 'rational'

By Andreas Rinke

TOKYO, Oct 28 (Reuters) - German Chancellor Friedrich Merz on Wednesday urged Japan to back a proposed global alliance of "like-minded partners" to defend rules-based trade and help countries resist the growing use of tariffs and economic coercion.

Merz has struggled to revive growth in Europe's largest economy, which has been hit by global tariff ructions and is also being squeezed by competition from China, which it sees both as a major trade partner and strategic rival.

"Should the rules of the global trading system be violated by others, or should economic coercion be employed, we could coordinate our actions within the alliance and present a united front," he said, without naming other states.

President Donald Trump has upended the global trade order in his second term in office, seeking to build a tariff wall around the US economy, while China has been accused of unfair trade practices, which Beijing rejects.

In responding to Merz's proposal, which he has touted on a week-long trip to Asia, China said it hoped Germany and the EU would be "objective and rational" and that it was committed to working to maintain the stability of trade and supply chains. 

With its industry blaming surging Chinese exports for factory closures and job losses, the European Union has launched a series of trade measures against Beijing. China has said in the past it is not the root cause of the EU's problems, but a partner in solving them.

"We stand on the threshold of a new era - a time that demands action from us," Merz said.

"We face challenges that are remarkably similar. We are witnessing major powers pursue a new kind of policy that is revolutionizing international rules. We are seeing breathtaking new technologies emerge, shifting the balance of power."

MERZ REFERENCES CANADA PM CARNEY

Merz's initiative echoes calls by Canadian Prime Minister Mark Carney this year for the world's middle powers to work more closely together to counter pressure from larger economies. 

"If we move forward together, the question will no longer be whether we are 'on the menu' or 'sitting at the table'," Merz said, invoking a line used by Carney during his January speech. 

"Because in that case, the restaurant itself belongs to us."

Coinciding with Merz's visit, a report said Germany's trade deficit with the Asia-Pacific region is set to hit a record of nearly €146 billion ($163 billion) in 2026 as falling exports to China outweigh growing sales elsewhere in the region. 

The German government has pursued a policy of "de-risking" its supply chains by diversifying its sources for raw materials, where China plays a dominant role, and seeking new partnerships.

Merz called for closer cooperation between Germany and Japan on securing critical raw material supplies, pointing to the latter's experience in the field.

Japan has spent more than a decade diversifying imports, building strategic reserves and developing recycling capabilities after a 2010 rare earths dispute with China exposed vulnerabilities in its supply chains.

"Diversification and the strengthening of our resilience are the imperatives of the hour," Merz said.

The chancellor, who next travels to South Korea, also proposed a major inter-regional agreement, saying talks between the European Union and members of the 12-nation CPTPP, which includes Japan and Canada, were a step in the right direction.

He also said Germany and Japan were exploring the possibility of developing a joint fighter jet.

Japanese Prime Minister Sanae Takaichi, alongside Merz, welcomed German engagement in the region. 

"We will explore opportunities and frameworks to deepen cooperation between our respective armed forces, and will also promote collaboration within the defense industry in areas where our capabilities are mutually complementary," she said.

In a joint statement, the two leaders agreed to strengthen cooperation on rules-based trade with like-minded partners in response to global challenges and reaffirmed the importance of upholding shared values including free and fair trade.

(Reporting by Andreas Rinke; additional reporting by Kiyoshi Takenaka; Writing by Miranda Murray; editing by Matthias Williams, Toby Chopra)