Today Wall Street and trade analysts are saying that they see a grand strategy in the U.S.-Mexico-Canada trade deal announced yesterday, in the trade deal with South Korea, and in negotiations with Japan and the European Union.
The goal, this analysis says, is to put together a coalition that isolates China so that the United States can exert maximum pressure in its push for deep changes in China’s economic system.
Whatever your estimates for how likely this strategy is to succeed, there’s general agreement that it would portend a long and punishing trade war with China.
China hawk Peter Navarro, White House trade advisor, wasn’t exactly keeping this strategy secret today. He told National Public Radio that “a small but important part” of the pact is aimed at China.
I’d change that to read “parts” but scanning the text of the deal makes it clear what Navarro is talking about. The rules of origin in the text, for example, look designed to keep Chinese imports from gaining significant market share in the United States. Language in the text also prohibits members from seeking to boost their economic competitiveness by devaluing their currencies. That hasn’t been an issue with Canada and Mexico, historically, but it is a key White House charge against China.
I also see evidence of trade coalition building in a joint statement last week from the trade ministers of the U.S., the European Union and Japan pledging to “address non-market-oriented policies and practices of third countries” and condemning the theft of intellectual property. That echoes U.S. goals in its currently suspended trade talks with China.
The challenge for this strategy is that the U.S. “asks” go to the core of China’s state-run economy. For example, the United States has pressed China to abandon the subsidies it uses to set industrial policy and indeed to abandon–or at least scale back–government policies that are designed to move specific sectors of the Chinese economy to the top of the world’s rankings.
No government in Beijing is going to give significant ground on those key issues without a long fight.