President Donald Trump looks to be preparing for a potentially protracted economic war with China by clearing the decks of disputes with America’s other trading competitors.
In just the last few weeks, he’s struck a last-minute deal with Canada and Mexico, signed a trade agreement with South Korea and convinced Japan to begin bilateral economic negotiations. The North American accord also includes provisions seemingly aimed at keeping Chinese products out of the region.
“Several months ago the US had a multi-pronged attack on its trading partners,” said Dec Mullarkey, managing director for Sun Life Investment Management which oversees $47 billion (Dh172.5 billion) in assets. “Now the US can zero in on China.”
That’s good news and bad news for the global economy.
On the plus side, it suggests that Trump is not an ultra-isolationist who’s opposed to all types of trade. As economists from JPMorgan Chase & Co see it, the president is holding back from launching a “war on trade” that could upend the world economy.
But he is embarking on a trade war with China that will take a bite out of both countries’ economies next year and raise the risk of a broad pullback in global business confidence, they said. “It’s too early to talk” with China, Trump said on Monday in announcing the new pact with Canada and Mexico at the White House. “Can’t talk now, because they’re not ready, because they’ve been ripping us for so many years. It doesn’t happen that quickly.”
US negotiators clearly had China in mind when they hammered out the new trade deal with Mexico and Canada to replace the 1994 North American Free Trade Agreement that Trump labelled a disaster. The agreement’s rules of origin, which govern how much value of a car needs to be made in the region, have been touted by the Trump administration as a tool to keep out Chinese inputs and encourage production and investment in the US and North America. “The US seems focused on keeping Chinese imports from gaining real market share in the US,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturer’s Association. “The blunt protectionist stick used by this administration may end up creating a coalition of major trading partners that will be difficult for Chinese carrots to compete with.”
The revised agreement also requires the three nations to give three-months’ notice if they start trade negotiations with a “non-market economy,” an indirect reference to China. The US can terminate its pact with Mexico or Canada if either of them strikes a deal with a non-market economy.
By settling on a deal with America’s neighbours — and beginning talks with allies Japan and the European Union— Trump is strengthening his negotiating position vis-a-vis strategic competitor Beijing. “The next step will be to bear down on China with a broader coalition,” said David Hensley, director of global economics for JPMorgan Chase in New York, noting that other countries share America’s concerns about Beijing’s alleged unfair trade practices and mercantilism.
“I think my biggest concession was making the deal, because we could have done it a different way. But it would have been nasty, and it wouldn’t have been nice, and I don’t want to have that.”