What Trump’s new trade pact signals about China
US President Donald Trump has finally agreed to a fairly modest and sensible update of the North American Free Trade Agreement (Nafta), while attempting to spin the announcement as the replacement of a horrendous deal with a magnificent new one.
The supposed newness of the Sept 30 agreement, which still requires congressional approval, is belied by the fact that many of its updates to the original Nafta had already been contemplated in the Obama administration’s proposed TransPacific Partnership (TPP). That multilateral regional trade deal would have also included Mexico and Canada, and its provisions covering e-commerce and intellectual property would have served as overdue updates to Nafta. But Mr Trump scrapped the TPP, only to have his trade negotiators crib from it to salvage Nafta.
On the whole, however, those in the know are right to question the president’s insistence that his new deal is “not Nafta redone”, and that we all call it “USMCA” (short for United States-Mexico-Canada Agreement). I would personally opt for a more existential “Camus”, but in fact this really is (thankfully) an amended and extended Nafta. It’s not like we rename the constitution every time it is amended.
That said, don’t underestimate the president’s ability to sell the updated trade deal to his base as a sea change in how the United States deals with the world, and the fulfilment of a central campaign promise. Indeed, the Nafta episode in the Trump Reality Show — from its over-the-top hostility (first towards Mexico, then towards Canadian Prime Minister Justin Trudeau) to its happy ending — offers instructive insights into the Trump modus operandi, and a strong hint of things to come, particularly for the climax involving China. It will be fascinating to see two of Mr Trump’s defining traits — his pattern of making matters worse before he claims credit for fixing them, and his tendency to be belligerent to foreign strongmen from afar, oddly ingratiating and submissive in person — play out on this defining geostrategic challenge.
Mr Trump has two advantages over his presidential predecessors in his quest for bold overseas wins. First, it’s become much easier for presidents, especially those adept at reality TV, to unilaterally proclaim victory in an age of competing, alternative narratives.
Then there’s the fact that Mr Trump can reap the benefits of the so-called Madman Theory, first posited by Italian political theorist Niccolo Machiavelli and associated at times with President Richard Nixon’s Vietnam policies. The idea is that people or nations might be more willing to make concessions to an irrational adversary, seemingly capable of anything. At a more prosaic level, Mr Trump’s apparent inability to distinguish between tactical and longerterm strategic interests empowers him to be more obstinate on particular matters. He could revisit the United States’ trade agreement with South Korea (as he did) on its narrow merits, or obsess over the Canadian government’s protection of its dairy farmers, oblivious to the broader context of why it might be a bad idea to jeopardise the overall relationship with Canada or Korea.
It was interesting to hear Mr Trump say last Monday that “it’s too early to talk” with China’s leadership, “because they’re not ready”. But it’s his administration that might not be ready for a summit between the heads of state. Mr Trump is still ratcheting up tensions with his various rounds of tariffs on Chinese goods, and Chinese retaliatory tariffs, and he will likely want to save any dramatic face-to-face reconciliation with President Xi Jinping for after the midterm elections when Special Counsel Robert Mueller’s probe into Russian interference in the US presidential election is reaching its own climax.
In contrast to the manufactured crisis surrounding Nafta, the United States does have legitimate grievances with China, and it isn’t clear how things will play out, mostly because it is up to China’s leaders to make some hard choices.
There is a strong and underappreciated case to be made that China and the United States are the global economy’s essential G-2 pivot, the world’s two foremost economic powers forming a win-win partnership, with a shared vested interest in the maintenance of the status quo. But there are also longstanding, ingrained Chinese practices — its protectionism in certain sectors, insistence on joint ownership agreements for foreign investors, disregard for intellectual property — that are incompatible with such a G-2 accommodation, not to mention with China’s World Trade Organisation commitments. A temperamental US president may be the one forcing the issue, but it is time for China’s leaders to decide once and for all whether their nation is to remain a rogue power challenging the established order, or a prime benefactor and co-guarantor of that order. It can’t continue to be both.
The ongoing suspense revolves around whether China will indeed make historic concessions and become a reliable American partner. This is the likeliest scenario. Despite the West’s tendency to view China as a stoic monolithic country unwaveringly playing a long game, Beijing is holding a weaker hand in the high-stakes game of trade-war poker, as evidenced by the contrasting performance of the two nations’ stock markets this year.
The less likely scenario of a clarifying break with China if a new accommodation isn’t reached with Beijing could still offer Mr Trump a bold overseas win, in the form of a reinvigorated economic alliance to contain China. Such an alliance would likely be anchored by a trade deal linking North America with Japan, Korea, and other Asian allies who remain far more nervous of Chinese intentions than of America’s unpredictable president.
But if such a Pacific region trade deal aimed at containing China comes to pass, don’t be tempted to call it the TPP. Maybe we can call it JKCAMUS instead.
‘‘ The US does have legitimate grievances with China, and it isn’t clear how things will play out.