US President Donald Trump’s new trade deal with Canada and Mexico saw stock markets rally and traders across North America breathe sighs of relief this week, but the news was received more warily in China.
Beijing has been locked in its own escalating trade war with the United States throughout 2018. According to several trade experts, Trump is likely to push harder for concessions from China in a row that could drag on for months – or even years – longer.
Trump hammered that point home when talking to reporters outside the White House on Monday, as he framed the deal with Canada and Mexico as a win for his hardball strategy to reshape global commerce to benefit the United States.
China has been “ripping us for so many years” with its “theft of intellectual property” and through a $375bn trade deficit, by which China sells more laptops, clothes and other goods to the US than it imports in the other direction, Trump said.
But Beijing is “having a much more difficult time” now that Washington has slapped three rounds of tariffs on some $250bn of its exports, said Trump. The former reality television star threatened to raise that by another $267bn.
“China wants to talk very badly,” Trump told reporters in the White House Rose Garden. “I said frankly it’s too early to talk because they’re not ready… If politically, people force it too quickly, you’re not going to make the right deal.”
Trump finalised the United States-Mexico-Canada Agreement (USMCA) on Sunday after threatening to exit its precursor, NAFTA, saying he wanted to shrink US trade deficits, claw back lost factory jobs, and better protect intellectual property.
According to Edward Alden, author of Failure to Adjust: How Americans Got Left Behind in the Global Economy, Trump can tout USMCA as a win at campaign rallies and use it as “negotiating leverage … to double down on China”.
“This is going to strengthen the president’s confidence that his approach is right. That if he talks tough enough, threatens tariffs and imposes tariffs, he can walk away with a deal that he likes. I think we’ll see that played out with China,” Alden told Al Jazeera.
USMCA also restricts its signatories from entering a free-trade agreement with a “non-market economy”. That phrase can refer to many trading nations but is understood to be aimed principally at China’s opaque markets.
Under Chapter 32, the US could pull out of USMCA if either Canada or Mexico strike a trade deal with China that Washington does not like – making it unlikely or extremely difficult for either partner to take that risk.
“That was meant to encircle China so that Canada, in particular, or Mexico, would not enter into trade negotiations,” with Beijing, Shannon O’Neil, a trade expert at the Council on Foreign Relations, a think-tank, told Al Jazeera.
As well as concluding the North America deal, the US has recently signed a revised trade agreement with President Moon Jae-in of South Korea and is starting talks on a separate two-way deal with Prime Minister Shinzo Abe of Japan.
Trade talks also continue with Washington’s European Union allies.
Brewing trade war
There are no plans for negotiations between China and the US, although the president’s chief economic adviser, Larry Kudlow, said Trump could meet China’s President Xi Jinping at a summit in Argentina in November.
US Trade Representative Robert Lighthizer has tried to recruit the EU and Japan to pressure Beijing to change its trade, intellectual property, and subsidy practices. In the wake of USMCA, Canada and Mexico are more likely to join that effort.
China and the US – the world’s two largest economies – have been locked in a mounting trade dispute since January when Washington slapped controversial tariffs on imported solar panels and washing machines.
Trump’s approach has its critics in the US, but many lawmakers and industry chiefs agree with the results of a government “Section 301” probe that criticised Beijing’s predatory industrial policies and unfair market restrictions on foreign firms.
Many also fear that Beijing’s Made in China 2025 project – an industrial upgrade strategy to shift China’s economy into robotics, energy-saving cars and other hi-tech goods – threatens the US’s position in top-end sectors.
Washington sharply escalated the trade row in September with more tariffs, this time on $200bn worth of Chinese goods. Those taxes took effect from September 24, starting at 10 percent and increasing to 25 percent from the start of next year.
As happened in previous rounds, China’s Ministry of Commerce then announced retaliatory measures on an extra $60bn of US imports and called for talks to resolve the row. China’s tariffs are on US soy, corn, cars, motorbikes and other products.
Tariffs, in theory, will make US-made products cheaper than imported ones and encourage consumers to buy American, boosting local businesses and supporting the national economy. But many US firms and industry groups say tariffs hurt US businesses.
Hurting the ‘base’
Daniel Kurtzer, a scholar at Princeton University, said the Trump administration has overlooked how Republican-voting American consumers will respond when large retailers raise the prices of China-made goods next year.
“A lot of Trump’s base will be affected by rising prices for washing machines, new cars and other basic things that will be impacted by tariffs,” Kurtzer, a former US ambassador to Egypt and Israel, told Al Jazeera.
“It’s a potent argument for opponents who can accuse Trump of trying to sucker his base into believing he has their back when really he’s only doing good for a small elite in the Republican Party and hurting the little guy.”
Among US firms, the car industry appears to have been the most hit by the trade war. Ford and General Motors have lowered their profit forecasts for 2018, citing higher aluminium and steel prices caused by new US tariffs.
The International Monetary Fund says an escalation of tit-for-tat tariffs could shave 0.5 percent off global growth by 2020. Another round of escalations in early 2019 would knock 0.81 percent off the world economy, according to a Morgan Stanley prediction.
Ultimately, Beijing may not have as much firepower as the US to retaliate, given the US buys much more from China than it sells. Instead, Beijing could fight back in other ways, such as increasing red tape for US firms operating in China.
Scott Miller, a former director for global trade policy at Procter & Gamble, a consumer goods firm, predicted a drawn-out war because President Xi was unlikely to risk nationalistic sentiment by capitulating to Trump.
Meanwhile, buoyed by a strong US economy, Trump may keep tariffs on Chinese goods over the long term so the trade war becomes a “new normal”, in which US firms buy products from other exporters, Miller told Al Jazeera.
“Nobody knows how this is going to turn out, but it’s highly possible that the Trump administration doesn’t really care if China complies or not,” said Miller. “They’d be happy with compliance, but they would not be unhappy with creating incentives to de-link China from the US economy, which is as good an outcome for them.”
Follow James Reinl on Twitter: @jamesreinl