Complex reshaping of industry chains means Sino-US trade dispute likely to drag on
The US and Mexico have reportedly reached a breakthrough in efforts to revamp the North American Free Trade Agreement. Some may believe the progress made by the US in advancing free trade is good news for the ongoing trade tension between China and the US, but the trade dispute between the world’s two largest economies is unlikely to end soon.
US President Donald Trump pulled the US out of the Trans-Pacific Partnership in his first week in office, creating the impression that his administration has a deep disdain for free trade agreements (FTAs). However, although Trump is not a big supporter of multilateral FTAs, the breakthrough made by the US and Mexico suggests that Washington is trying to maximize US benefits by advancing bilateral FTAs.
Bilateral deals are likely to help the US gain more bargaining power in negotiations that have far fewer participants than multilateral FTAs. The US is the world’s largest economy and the most important trade partner for many countries, giving Washington an edge over his opponents in bilateral talks.
With “America First” as a guiding principle, the US is trying to rewrite the rules of global trade and economics. The US and Mexico agreed to a sweeping trade deal that pressures other economies like Canada to accept high standards when it comes to issues such as vehicle trade. It seems the US wants to foster a high-standard global free trade network to reshape the global manufacturing chain. The talks between the US and Mexico are only one part of a long-term effort to bring manufacturing back to the US. China and the US have grown highly interdependent in economic terms, so some observers don’t think there will be a full-scale trade war, because trade friction is actually a double-edged sword for both sides and will hurt the US economy.
However, it is precisely because of this interdependence that the US has to start a trade dispute to re-shape the manufacturing chain between the two countries. This will be a key part of US efforts to bring manufacturing back home.
Even if China and the US can make headway in bilateral talks, the trade dispute is likely to become a protracted one, because the adjustment of the manufacturing chain is a long process. China should be prepared for a long-lasting trade conflict and try to take advantage of its economy to protect its manufacturing sector.