‘Amer­ica First’ trade rows about to be­gin

China Daily (Hong Kong) - - VIEWS -

The first China-US Com­pre­hen­sive Eco­nomic Di­a­logue in Wash­ing­ton con­cluded on July 19, with­out a joint news con­fer­ences, joint state­ment or new an­nounce­ments on mar­ket ac­cess by the United States to China or vice-versa, prompt­ing many to as­sume the CED has paved the way to a ma­jor trade con­flict be­tween the two coun­tries.

But de­spite tough po­lit­i­cal rhetoric, eco­nomic re­al­i­ties do not seem to sup­port such a view.

A more nu­anced sce­nario is that, while the Don­ald Trump ad­min­is­tra­tion was will­ing to pe­nal­ize the Sino-US eco­nomic di­a­logue over slow progress in deficit re­duc­tion and per­haps the Demo­cratic Peo­ple’s Repub­lic of Korea’s geopol­i­tics, it also wanted to use the CED as a “demon­stra­tion ef­fect” in the im­pend­ing North Amer­ica Free Trade Agree­ment talks and trade re­views — to sig­nal de­ter­mi­na­tion.

In fact, the shad­ows over the CED emerged a while ago. Af­ter Trump met with Pres­i­dent Xi Jin­ping in early April, the two sides an­nounced a 100-Day Ac­tion Plan to im­prove bi­lat­eral trade ties. Yet only two weeks later, Trump is­sued a pres­i­den­tial mem­o­ran­dum, di­rect­ing Sec­re­tary of Com­merce Wil­bur Ross to in­ves­ti­gate the ef­fects of steel im­ports on the US’ na­tional se­cu­rity on the ba­sis of the Trade Ex­pan­sion Act of 1962.

Af­ter re­turn­ing from his visit to France last month, Trump ramped up the heat. “They’re dump­ing steel and de­stroy­ing our steel in­dus­try,” he said on the eve of the CED. “They’ve been do­ing it for decades, and I’m stop­ping it. There are two ways: quo­tas and tar­iffs. Maybe I’ll do both.”

While China’s am­bas­sador to the US Cui Tiankai warned Wash­ing­ton of “trou­bling de­vel­op­ments” that could de­rail the bi­lat­eral re­la­tion­ship, Ross raised the heat by say­ing he would present Trump a range of op­tions to re­strict steel im­ports on na­tional se­cu­rity grounds.

Sig­nif­i­cantly, steel im­ports as a na­tional se­cu­rity threat was not pre­sented only as a Sino-US is­sue but also as a mul­ti­lat­eral chal­lenge.

As steel im­ports sud­denly be­came a “na­tional se­cu­rity” is­sue for the US, Sec­re­tary of De­fense James Mat­tis was dragged into the de­ba­cle. By midJune, Europe’s NATO lead­ers had al­ready launched an ex­tra­or­di­nary lob­by­ing cam­paign against an an­tic­i­pated US crack­down on steel im­ports, which, they said, would hit US al­lies more than China. Con­se­quently, Mat­tis, not Com­merce Sec­re­tary Ross, has been hear­ing the cases of ap­pre­hen­sive Ger­man and Dutch NATO lead­ers and pass­ing on their con­cerns to the White House.

In the White House, the is­sue reignited the old divide be­tween trade hawks — in­clud­ing Trump’s trade and in­dus­trial pol­icy head Peter Navarro; trade rep­re­sen­ta­tive Robert Lighthizer; and trade ad­vi­sor Dan DiMicco, who is for­mer CEO of US steel gi­ant Nu­cor — who are push­ing for high im­port tar­iffs, and the more busi­ness-friendly for­mer Gold­man Sachs ex­ec­u­tives — Sec­re­tary of Trea­sury Steven Mnuchin and Na­tional Eco­nomic Coun­cil chief Gary Cohn — who ar­gue for re­straint.

Wash­ing­ton’s Euro­pean NATO al­lies do not buy the na­tional se­cu­rity ar­gu­ment. Some EU lead­ers are even ready for re­tal­i­a­tion if Trump de­cides to walk the talk.

On the other hand, the US’ NAFTA part­ners have been mon­i­tor­ing the de­ba­cle closely. If the Trump ad­min­is­tra­tion plans to use steel as a na­tional se­cu­rity threat, Canada and Mex­ico know full well the fo­cus will also be on NAFTA rather than just China or Ger­many.

China pro­duces al­most half of the world’s steel, but its US mar­ket share in steel is mar­ginal — less than 2 per­cent. The largest steel ex­porters to the US in­clude Wash­ing­ton’s NAFTA part­ners Canada (al­most 17 per­cent) and Mex­ico (about 9 per­cent), East Asian gi­ants the Repub­lic of Korea (12 per­cent) and Ja­pan (nearly 7 per­cent), as well as Brazil, Turkey, Rus­sia, Ger­many, Tai­wan, Viet­nam — and then the Chi­nese main­land.

So if Trump re­ally is “hell-bent on im­pos­ing” ma­jor tar­iffs on steel, it is the US’ NAFTA part­ners that will be the first to feel the heat. But if Trump moves fur­ther to im­ported alu­minum, semi­con­duc­tors, pa­per, house­hold ap­pli­ances, that’s when China and other ma­jor ex­porters to the US will be­come tar­gets as well. What next and when? Re­cently, Ross seemed to be push­ing for a trade war over steel at a closed-door meet­ing with Sen­ate Fi­nance Com­mit­tee mem­bers, but he did not put a time frame on the re­lease of his re­view. Of­fi­cially, he has 270 days to sub­mit a re­port to Trump — which means any­time be­tween soon and by late fall.

If Ross “finds” that steel im­ports threaten to im­pair US na­tional se­cu­rity, Trump must de­ter­mine within three months whether he con­curs with Ross’s find­ings; and what ac­tions should be taken.

How­ever, the highly an­tic­i­pated NAFTA talks will move ahead faster. Ac­cord­ing to the US Trade Rep­re­sen­ta­tive’s re­cently re­leased ne­go­ti­at­ing goals, the main ob­jec­tive is to re­duce US trade deficit. What free trade ad­vo­cates find dis­tress­ing is that the USTR’s goals re­veal lit­tle about such flash­points as dis­pute-set­tle­ment mech­a­nism, in­tel­lec­tual prop­erty, and rules of ori­gin. What they see as re­as­sur­ing is that the USTR’s ob­jec­tive is to build on ex­ist­ing agree­ments, in­clud­ing World Trade Or­ga­ni­za­tion mea­sures and some el­e­ments of the Tran­sPa­cific Part­ner­ship agree­ment (which Trump buried dur­ing his first day in the of­fice).

Nev­er­the­less, the NAFTA talks are likely to be long and con­fronta­tional. Even more im­por­tantly, the NAFTA ob­jec­tives are likely to be used as a tem­plate not just for other pend­ing trade re­views (par­tic­u­larly the ROK), but with per­ceived “deficit of­fend­ers” in Europe (es­pe­cially Ger­many) and Asia (China, but also Ja­pan).

The planned steel im­port tar­iffs are likely to il­lus­trate the White House’s ef­fec­tive ob­jec­tives. Dur­ing his cam­paign, Trump spoke of about 45 per­cent im­port tar­iffs. In the past few months, his team has floated the idea of 10 per­cent tar­iffs. But at a re­cent White House meet­ing with some 22 lead­ing of­fi­cials, Trump said he is will­ing to im­pose 20 per­cent tar­iffs, even if al­most 20 of those of­fi­cials were against the idea.

If that’s the case, why would Trump be so will­ing to go against the main­stream?

Trump’s fo­cus has never been on the mid­dle-of-the-road US con­stituen­cies, but on those that made pos­si­ble his win through the Elec­toral Col­lege and his cam­paign ob­jec­tives that th­ese con­stituen­cies sup­ported — par­tic­u­larly “Amer­ica First” trade pol­icy pred­i­cated on deficit tar­get­ing.

Tim­ing is of vi­tal im­por­tance. In the past few months, Repub­li­cans have failed twice to re­peal Oba­macare, and the Trump ad­min­is­tra­tion’s tax re­forms have stalled in the Congress.

In the medium term, Spe­cial Coun­sel Robert Mueller’s in­ves­ti­ga­tion may seek to un­der­mine Trump’s po­lit­i­cal fu­ture. In the short term, it will com­pli­cate any re­forms that re­quire sup­port by the Congress. How­ever, the in­ves­ti­ga­tion is less likely to tie Trump’s hands in trade pol­icy, which can be built on ex­ec­u­tive pow­ers.

Per­haps that’s why Trump ramped up the heat be­fore the first Com­pre­hen­sive Eco­nomic Di­a­logue. He needs per­ceived short-term wins to ap­pease his con­stituen­cies and to re­store the ad­min­is­tra­tion’s cred­i­bil­ity — even if that means alien­at­ing the US’ long­stand­ing NATO part­ners in Europe, NAFTA part­ners in North Amer­ica, East Asian part­ners Ja­pan and the ROK — and China.

He needs per­ceived short-term wins to ap­pease his con­stituen­cies and to re­store the ad­min­is­tra­tion’s cred­i­bil­ity — even if that means alien­at­ing the US’ long­stand­ing NATO part­ners ...

The author is the founder of Dif­fer­ence Group and has served as re­search di­rec­tor at the In­dia, China and Amer­ica In­sti­tute (USA) and vis­it­ing fel­low at the Shang­hai In­sti­tutes for In­ter­na­tional Stud­ies (China). Cour­tesy: chin­aus­fo­cus.com

MA XUEJING / CHINA DAILY

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