Economy

China, NAFTA, and the Trade Trump Card

The president made some progress toward his goals over the weekend with key trade deals.

Lewis Morris · Dec. 4, 2018

During the G20 summit in Buenos Aires, President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce in the “trade war” between the two countries while negotiators attempt to iron out an agreement over tariffs, intellectual property theft, cybercrime, and other matters.

The move came as the U.S. was prepared to enter another level of escalation by raising tariffs on Chinese imports from 10% to 25%. In return, China will purchase a “very substantial” amount of U.S. agricultural, energy, and industrial products “immediately.” No one yet knows how immediately or how substantial China’s purchases will be, but business and political leaders were optimistic about the developments.

The Business Roundtable called on the White House to bring in other trading partners to create an international consensus in dealing with China.

This might be a good idea. China is not known for keeping its word when it comes to trade and protection issues, and it has flouted U.S. complaints about its shady trade practices before. However, if the EU and Japan backed the U.S. in these disputes, the Chinese might think twice about breaking the rules.

The National Retail Federation said it was a good thing that the administration decided to “give diplomacy a chance.” This was a sentiment echoed by the media and other business groups. What these organizations don’t admit is that Trump had to get tough with China for diplomacy to even be considered an option. Many previous presidents have paid lip service to getting tough with China, only to shrug and go back to business as usual once the TV cameras turn elsewhere.

Tariffs are not productive in the long run. In the end, they are just another tax that (American) consumers must pay for goods and services. However, Trump recognized that something had to be done about America’s trade imbalance with China, and he used the tools at his disposal to get Beijing to the bargaining table. By doing so, he was really returning fire in a trade war in which the U.S. had effectively unilaterally disarmed. Trump’s moves did enough to China’s economy to get Xi to agree to a truce.

The tariffs on China are not just about trade alone, which makes it a little easier to appreciate Trump’s actions. He’s using tariffs to put political as well as economic pressure on the Chinese. China has been setting itself up to become a hegemonic power in Asia, but it’s once superhuman economy has been showing strain and frustrating its plans.

Trump has exploited this, reminding the Chinese that the U.S. is still the premier power in the world. He has also encouraged the Chinese to lean on North Korea so that denuclearization efforts will bear fruit. China is the only friend Kim Jung-un has, and going through Beijing to get to Pyongyang increases the likelihood that Trump can get North Korea to give up its nuclear program.

The China tariff truce wasn’t the only good trade news Trump brought back from Argentina. Leaders of the U.S., Canada, and Mexico signed the United States-Mexico-Canada Agreement. Mexico’s legislature is expected to ratify the treaty right away. Canada promises to do so after the U.S. Congress passes the agreement.

House Republicans have been encouraged to pass the treaty before the Democrats take over in January, as it’s unclear what House Democrats will do with the deal. It’s not above Nancy Pelosi to sink it for no other reason than stick it to Trump. Dems have declared that there are provisions in the trade deal that they do not like, but the changes in the new agreement are in line with what would ordinarily please Democrat constituents. But these aren’t ordinary times.

Meanwhile, Trump suggested that he would formally pull out of NAFTA, forcing Democrats to either take up the new agreement or go back to at least some pre-1994 trade rules in North America. That may be a bluff, but it’s not entirely out of the realm of possibility that Pelosi wouldn’t call it.

Democrats have proven time and again that their hatred for Trump supersedes everything. They will do whatever they can to defeat his chances for reelection in 2020. Trashing a favorable trade deal would be just one more stepping stone toward that goal.

Despite his threat to scrap NAFTA early, Trump claims to be optimistic that he can work out the new trade agreement with Congress. We’ll see.


Update: Trump tweeted, “….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN”

He also may have jumped the gun in terms of any kind of real deal with China, but, again, we’ll see.

Click here to show comments

Subscribe! It's Right. It's Free.