The US cannot possibly direct all its protectionist firepower towards Beijing - Financial Times

Sept. 10, 2018.

Donald Trump’s China pivot
The US cannot possibly direct all its protectionist firepower towards Beijing

China's president Xi Jinping, left, and US president Donald Trump in Beijing last year © AFP

James Politi in Washington
Hello to all readers of the FT’s Free Trade. I’m James Politi and I have taken over as World Trade Editor based in Washington — after four years as Rome Bureau Chief, covering the rise of populism in the heart of Europe.

It’s a daunting and fascinating time to be covering trade, as the Trump administration rewrites the rules of global commerce and clashes with America’s main commercial partners. One of my jobs will be to shepherd the Free Trade newsletter — writing columns and bringing in writers from around the FT network to offer their perspective and insights outside the DC bubble, or “Crazytown”, as Bob Woodward’s new book describes the place.

I am very keen for any feedback about the newsletter, for better or for worse. I would also love to get your tips or commentary on any aspect of international trade policy — and please send me any interesting research you may be working on. Email me at james.politi@ft.com. And if you’re in DC, let’s grab a coffee. Thanks for being loyal FT readers.

As US president Donald Trump prepared to enter the heat of battle in his trade war with China — with the imposition of a planned new round of tariffs on $200bn worth of imports — Larry Kudlow, his chief economic adviser, went on CNBC to offer a soothing message to investors.

A deal to overhaul Nafta was close to being completed, and a detente with the EU was solidly under way. The fights with America’s traditional allies would be on the backburner, and they could forge a “trade coalition of the willing” to confront Beijing.

“[The] EU would rather do business with the US than it would with China. I think the same is true with Japan. I think the same is true with Mexico,” Mr Kudlow said. “I think the Chinese, you know, may find themselves more isolated if they don’t come into the global process . . . and begin to say yes to the asks of President Trump.”

The notion that the Trump administration can successfully perform a “pivot to China” on trade policy, directing all of its protectionist firepower towards its giant trading partner and strategic rival across the Pacific Ocean, is tantalising in Washington but questionable in practice. There is still no guarantee that a Nafta deal can be successfully completed in the coming weeks, with Canadian and US officials still at odds on issues ranging from agriculture to dispute settlement, and Mr Trump launching angry tweets at Ottawa earlier this month.

Robert Lighthizer, the US trade representative, heads to Brussels on Monday to try to build on the July truce between Mr Trump and Jean-Claude Juncker, the president of the European Commission. But among EU officials there are still deep misgivings about US intentions on trade, and fears that Washington could at any point revert to threatening new national security-based tariffs on cars, on top of those introduced on steel and aluminium this year.

EU and Japanese officials did meet American trade negotiators at the end of August to begin discussing common ways to tackle Chinese unfair practices, and there is a clear common interest there. But there is little confidence that Mr Trump will be able to stick to any easing of trade hostilities with his closest allies, let alone forge a united front that draws broader support at the World Trade Organization, and truly have an impact on Chinese policymakers.

The doubts are fuelled not just by concerns about Mr Trump’s erratic style and frequent U-turns, but also the fact that trade hardliners have gained the upper hand in the administration’s internal battles over commercial policy. For Mr Lighthizer, as well as Peter Navarro, the chief trade hawk in the White House, the goal is not only to disentangle the US from its Chinese supply chains, and to shift production back home, but to do the same with the rest of America’s traditional trading partners as well.

Moreover, the top US trade officials are disdainful of any supranational bodies that might constrain US sovereignty — from WTO rules and dispute settlement panels, to arbitration tribunals used by companies to challenge unfair government policies when they invest abroad.

Then there is the matter of Mr Trump’s own views on trade. Revelations in Fear, a book by veteran Washington Post journalist Bob Woodward, will not be of much comfort, suggesting Mr Trump’s protectionist instincts may be even stronger than previously thought, preventing him from making commercial peace with traditional allies. One anecdote noted that Mr Trump scribbled “TRADE IS BAD” as he worked on a speech on the way back from the G20 meeting in Hamburg last year. In another, Gary Cohn, his former top economic adviser, is said to have snatched a draft notification of America’s intention to withdraw from a trade deal with South Korea off Mr Trump’s desk, successfully preventing the president from moving ahead with the plan.

But even for a US administration — and a president — enamoured with unilateralism, single-handedly taking on China is a very risky endeavour.

Chart of the day
After Mr Trump threatened China with a further $267bn in tariffs on top of the $50bn already implemented and $200bn under consideration, the Geneva-based Trade News Centre has shown how profoundly the third round would affect US consumers, and just before Christmas.

Hiccups — or more — on China’s Belt and Road Initiative, as both Malaysia and Pakistan are questioning major projects.
China is seeking to enlist Wall Street leaders to sway Mr Trump into easing up on the tariffs.
India is taking a tougher line on open data flows.
Two very useful trade podcasts from inside the Beltway — both of which focused on Nafta in their latest episodes. One is by Scott Miller and Bill Reinsch of the Center for Strategic and International Studies — the other is by Chad Bown of the Peterson Institute for International Economics and Soumaya Keynes of The Economist.
The Wall Street Journal looks at the US-China race for primacy in 5G. Last week Cisco warned that the US could lose if it placed tariffs on imported networking equipment.