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Will Trump Hit Pause on the Trade War With China?

Under mounting pressure, the U.S. president needs a win at G-20 summit.

Leaders of the United States, Canada, and Mexico signed the revised NAFTA accord at the G20 summit in Buenos Aires, Nov. 30, 2018. (Saul Loeb/AFP/Getty Images)
Leaders of the United States, Canada, and Mexico signed the revised NAFTA accord at the G20 summit in Buenos Aires, Nov. 30, 2018. (Saul Loeb/AFP/Getty Images)

The G-20 summit this weekend in Argentina promises plenty of drama, from the on-again, off-again, on-again, off-again meeting between U.S. President Donald Trump and Russian President Vladimir Putin to the contentious appearance of Saudi Crown Prince Mohammed bin Salman.

But for the near-term future of the global economy, which is already running into serious headwinds due to a year of rising trade tensions, the biggest question is whether Trump and Chinese President Xi Jinping will call a truce or double down on their trade war. Hanging in the balance is the threat of additional U.S. tariffs on hundreds of billions of dollars worth of Chinese goods, which if implemented would land like a gut punch on the world’s two biggest economies.

The summit in Buenos Aires isn’t just important for the future of the U.S.-China relationship: What happens between Trump and Xi will also shape the fate of the newly renegotiated free trade agreement between the United States, Canada, and Mexico, which was signed on Friday, but which still must be approved by the U.S. Congress.

Pre-summit posturing by both the United States and China has helped raise the profile and the stakes of what are usually tightly scripted affairs. Trump this week told reporters he was ready to levy tariffs on essentially all Chinese exports to the United States if no deal can be reached in Buenos Aires, spooking sectors like information technology that depend on supply chains that reach across the Pacific. U.S. Trade Representative Robert Lighthizer, meanwhile, took aim at China’s newly raised tariffs on U.S. autos and clamored for a level playing field for American exports.

Chinese officials have counterpunched as well. Cui Tiankai, the Chinese ambassador in Washington, warned U.S. officials this week not to repeat the protectionist mistakes of the 1930s and criticized the Trump administration’s all-take, no-give approach to trade talks. Xi, meanwhile, sang a paean to free trade and global economic integration in an article in Argentine media, reprising his role as defender of the liberal world order under assault from Trump.

Trump didn’t reveal much more in comments just before departing for the summit on Thursday. “We’re very close to doing something with China but I don’t know if I want to do it,” he said. “I think China wants to make a deal. … I like the deal we have right now.”

One possible outcome is that Trump pulls a page from his North Korea summit playbook and unilaterally declares victory despite wresting few concrete concessions from the other side. Chinese officials have periodically offered to buy more U.S. goods like agricultural products, oil, and gas, and they have repeatedly promised to open up their economy to foreign investment and crack down on predatory practices, even if they’ve refused to make the kind of fundamental economic changes Trump administration hard-liners have demanded.

“I think Trump is trying to create the narrative where he can claim success, and while they haven’t met the full goals of the administration, there’s enough to believe the Chinese have conceded on important fronts,” said Elizabeth Economy, the director for Asia studies at the Council on Foreign Relations.

With Trump feeling growing domestic political pressure from farmers, carmakers, and other manufacturers that are suffering billions in losses thanks to the tariffs, there’s reason to believe Trump could hit the pause button.

“I think he can get enough out of the Chinese to claim a modicum of success and at least forestall the next round of U.S. tariffs—that would be the optimal outcome,” Economy said.

What’s much harder to see emerging from the G-20 is a grand bargain between Beijing and Washington that could ease trade tensions already weighing on global growth, address deep-rooted economic imbalances, and deal with rising security challenges in the Asia-Pacific region. Such a deal makes sense in theory, because both sides have a lot to lose from the trade war and naval brinkmanship on issues such as control of the South China Sea.

But the two sides are too far apart on questions such as the government’s role in the economy. And Xi’s vision of a powerful, illiberal China reclaiming its leading role on the world stage clashes at a fundamental level with U.S. desires to maintain dominance, argues Ely Ratner, a former Obama administration official now at the Center for a New American Security, in Foreign Affairs.

The irony is that Trump comes to the G-20 summit well positioned to push back against China’s trade practices and state-led industrialization, known as “Made in China 2025.” Other developed economies such as Europe and Japan support what they see as America’s belated effort to fight predatory practices such as technology theft, subsidized exports, closed-off markets, and plans to dominate huge sectors of the global economy, even if they abhor Trump’s preference for slapping tariffs on friends and foes alike.

“While the Europeans are not supportive of tariffs, they are supportive of the much tougher stance,” Economy said. “To get real progress on ‘Made in China’ would require the administration to move multilaterally, to join Europe, Japan, and Australia” in pressuring Beijing for broad reforms, she said.

There are plenty of areas where even the Trump administration is happy to act in concert with allies, from the State Department to the Pentagon, Economy noted, even as U.S. trade policy has remained the preserve of unilateralists. “If that multilateral fever could spread to the trade front, that would be great,” Economy said.

In addition to the U.S.-China trade war, the G-20 summit also saw the culmination of a tortured, two-year effort to renegotiate the North American Free Trade Agreement, which Trump blamed for lost U.S. jobs. Trump, Canadian Prime Minister Justin Trudeau, and outgoing Mexican President Enrique Peña Nieto signed the revised accord Friday morning, after speculation that lingering bad feelings over continued U.S. steel tariffs on its neighbors would relegate the signing ceremony to more junior officials.

Canada and Mexico had both sought to get the tariffs lifted before signing the new trade pact, but that didn’t happen. Signing the accord will give away what leverage they had to get the tariffs lifted, said Antonio Ortiz-Mena, a former Mexican trade negotiator now at the Albright Stonebridge Group. Yet both have little choice for now but to sign the new accord. Mexico, especially, has already been rocked by financial and economic gales since the presidential election this summer of leftist firebrand Andrés Manuel López Obrador, and it needs a dose of economic stability.

That doesn’t mean Mexico won’t punch back. With the U.S. tariffs staying in place, the new Mexican president could replace Mexico’s existing, limited tariffs on U.S. exports with much blunter methods, Ortiz-Mena said. The new NAFTA, in other words, could come with new trade barriers.

“You could push the reset button on trade rules, and also the reset button on additional trade restrictions,” he said. “It’s a surreal world.”

Despite the signing ceremony, the ultimate fate of the new NAFTA may be tied up with what happens between Trump and Xi on trade, since a newly Democratic U.S. House of Representatives must approve the revised trade pact in the new year and has already flagged concerns with provisions like labor and environmental protections. If trade tensions with China increase after the G-20 summit, even Democratic lawmakers would be tempted to hand Trump a victory on the new trade deal to limit the economic fallout for U.S. farmers and manufacturers, Ortiz-Mena said.

“If there’s no pause on tariffs or a grand deal with Xi, that bodes well for USMCA,” he said. “The worse U.S.-China economic relations are, the higher the odds of ratification.”

This article was updated Friday morning after the USMCA signing.

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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