U.S. gains ammo in trade war with China Deal with Mex­ico, Canada un­der­cuts Bei­jing’s strat­egy to di­vide, con­quer

The Washington Times Weekly - - Geopolitics - BY GUY TAY­LOR AND DAVID R. SANDS

Pres­i­dent Trump’s abil­ity to wan­gle a new deal from NAFTA part­ners Mex­ico and Canada will give the White House lever­age to take a harder line in the es­ca­lat­ing trade war with China, ad­min­is­tra­tion back­ers said.

“Now the fo­cus turns to China, where Pres­i­dent Trump can re­sume his ne­go­ti­a­tions from a po­si­tion of strength,” said Chris Gar­cia, a for­mer Com­merce De­part­ment deputy di­rec­tor.

He said last week that the United StatesMex­ico-Canada Agree­ment is a blow to Bei­jing be­cause it will cre­ate more hur­dles for Chi­nese-made auto parts to en­ter the U.S. mar­ket and un­der­cut Bei­jing’s di­vide­and-con­quer strat­egy.

Trade an­a­lysts said a pro­vi­sion in the agree­ment deal­ing with cur­rency ma­nip­u­la­tion gives Mr. Trump a tem­plate to at­tack Bei­jing for what crit­ics say is a long pat­tern of driv­ing down the yuan to ben­e­fit Chi­nese ex­porters.

Al­though it’s un­clear when the next round of U.S.-Chi­nese trade talks will oc­cur — Bei­jing halted ne­go­ti­a­tions last week af­ter Mr. Trump or­dered tar­iffs on a fresh $200 bil­lion in Chi­nese im­ports — Mr. Trump clearly sig­naled that he is ready to play hard­ball.

“It’s a priv­i­lege for China to do busi­ness with us,” Mr. Trump told re­porters at the White House while an­nounc­ing the deal with Canada and Mex­ico.

“China wants to talk very badly,” said Mr. Trump, cred­it­ing his will­ing­ness to use tar­iffs and other mea­sures to re­bal­ance the trad­ing re­la­tion­ship be­tween the globe’s two big­gest economies. “Frankly, it’s too early to talk. Can’t talk now be­cause they’re not ready, be­cause they’ve been rip­ping us for so many years.”

Some ad­min­is­tra­tion of­fi­cials ar­gued that the pres­i­dent now has mo­men­tum on his side as he ramps up talks with China and Ja­pan on new trade deals.

“The domi­noes are fall­ing, and it is good news for U.S. farm­ers,” Agri­cul­ture Sec­re­tary Sonny Perdue said in a state­ment.

But some an­a­lysts pre­dicted that, as tu­mul­tuous as the USMCA ne­go­ti­a­tions were over re­cent months, a break­through on trade with China is likely to be even more elu­sive.

“Un­for­tu­nately, the China story is a lot more com­pli­cated,” said Luis Costa, a top strat­egy an­a­lyst with Citibank.

Mr. Costa ar­gued in an in­ter­view on CNBC that the Trump ad­min­is­tra­tion’s im­me­di­ate goals for the trade talks with China are not en­tirely clear.

“What does the U.S. re­ally want to achieve in the short term so we can fi­nal­ize and mute the noise? We don’t quite know,” he said. “So I think that the story will prob­a­bly be with us for years, not months.”

Chi­nese of­fi­cials had no im­me­di­ate re­sponse to the Canada deal. Other Asian stock mar­kets were mixed as traders strug­gled to un­der­stand the deal.

Com­plex prob­lem

China poses a prob­lem of far greater mag­ni­tude and com­plex­ity for U.S. trade ne­go­tia­tors. In ad­di­tion to break­ing down tra­di­tional trade and tar­iff bar­ri­ers, Wash­ing­ton is de­mand­ing changes to China’s rules on such mat­ters as tech­nol­ogy-shar­ing and in­tel­lec­tual prop­erty rights.

Al­though Mr. Trump likes to high­light China’s re­cent eco­nomic and fi­nan­cial woes, Chi­nese Pres­i­dent Xi Jin­ping faces far fewer do­mes­tic pres­sures to cut a deal than do the demo­crat­i­cally elected lead­ers of Canada and Mex­ico.

The U.S. is China’s largest sin­gle ex­port mar­ket, tak­ing in just un­der a fifth of all Chi­nese ex­ports. The U.S. is the third­largest im­porter into China, trail­ing South Korea and Ja­pan.

The planned U.S.-Mex­ico-Canada Agree­ment, as­sum­ing the three coun­tries rat­ify it, takes off the ta­ble any hopes China may have had of en­list­ing Mex­ico City and Ot­tawa in a broad al­liance against Mr. Trump’s trade agenda. The break­through could strengthen Mr. Trump’s hand by align­ing the U.S., Mex­ico and Canada as three-way trade part­ners, with China on the out­side look­ing in.

One area of the agree­ment that may have an im­me­di­ate im­pact for China is the ex­port of car and auto parts to the U.S. The agree­ment ef­fec­tively caps im­ports from Canada and Mex­ico at 2.4 mil­lion ve­hi­cles and $90 bil­lion worth of auto parts an­nu­ally. Any­thing above that trig­gers a 25 per­cent tar­iff.

The agree­ment also re­quires 75 per­cent of the value of ve­hi­cles sold in the U.S. to be pro­duced within the NAFTA mar­ket and stip­u­lates that 40 per­cent to 45 per­cent of a ve­hi­cle’s value be made in ar­eas pay­ing at least $16 an hour.

A re­port last week by In­vestors Busi­ness Daily main­tained that “China is a prime tar­get of the new auto part re­stric­tions” that aim to “curb the use of com­po­nents pro­duced out­side North Amer­ica.”

“This is a ma­jor vic­tory for the U.S. in re-ori­ent­ing the sup­ply chain away from South­east Asia and back to North Amer­ica,” Mr. Gar­cia said. “China was us­ing Mex­ico to game the sys­tem.”

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