image

US-China trade war: All stories

Will Trump push for an ‘America first’ trade agreement in Asia modelled on his new Nafta deal?

  • Dan Steinbock says the US-Mexico-Canada Agreement could become a template for trade deals Trump wants to execute around the world, but it won’t be an easy sell
  • In Asia, a deal along the lines of the USMCA could split the region and undermine China’s rise
PUBLISHED : Thursday, 25 October, 2018, 1:02am
UPDATED : Thursday, 25 October, 2018, 2:03am

US President Donald Trump seeks to redefine all major free-trade agreements on the basis of US economic and geopolitical leverage. In these efforts, the United States-Mexico-Canada Agreement (USMCA) is likely to serve as a blueprint.

Despite Trump’s hyperbole, the USMCA reads like a mix of Bill Clinton’s North American Free Trade Agreement (Nafta) and Barack Obama’s Trans-Pacific Partnership (TPP). Within North America, the treaty will tighten current restrictions on vehicle parts and introduce new rules for manufacturing in high-wage factories, mainly in the US and Canada, though it may leave major supply networks largely intact. Moreover, Nafta’s dispute settlement mechanism, which the US would have liked to eliminate, will carry over into the USMCA.

For investors, businesses and consumers, the net effect is rising costs.

Internationally, the effects will be more ambiguous but potentially consequential. The contract is peppered with fine-print clauses designed against possible Canadian or Mexican deals with a “non-market economy” (read China), which, through the USMCA, Trump would like to extend into all other major US free-trade agreements.

What’s worse, some provisions could make it easier for companies to challenge environment regulations in the three countries, even before they are adopted. Thus, the USMCA could prolong Trump’s climate damage legacy for years after he leaves office.

Watch: Goodbye Nafta, hello USMCA

In the 1990s, Clinton hoped to extend Nafta into a Free Trade Agreement of the Americas (FTAA). Venezuela's Hugo Chavez condemned it as a “tool of imperialism”. Then presidents Luiz Inacio Lula da Silva of Brazil and Nestor Kirchner of Argentina demanded that the pact eliminate US agriculture subsidies and offer South American producers access to US markets. Yet, instead of opening South America to free trade, the FTAA split the region into two blocs, as Lula had predicted.

Like the Reagan administration in the 1980s, the Trump White House is willing to resort to hard power and is now in a better position to superimpose US trade terms on South America.

USMCA foreign exchange clause could be included in future deals

The first-round triumph of the extreme-right presidential candidate Jair Bolsonaro in Brazil bodes well for US efforts. Meanwhile, Argentina’s pro-US president, Mauricio Macri, has undermined the economy with a US$50 billion deal with the International Monetary Fund.

However, although the bargaining position of the key South American economies is currently significantly lower than a decade ago, an “America first” South America deal will not materialise without resistance, thanks to Trump’s controversial immigration policies, and US withdrawal from international trade and climate change agreements.

As for Europe, when Obama began talks on the Transatlantic Trade and Investment Partnership (TTIP) in early 2013, European Union leaders were divided over goals and the Democratic White House was constrained by a Republican-controlled Congress.

Now, Trump has alienated German Chancellor Angela Merkel. French President Emmanuel Macron has stated that he is not in favour of a “TTIP-style” US deal. The disagreements between Washington and Brussels extend from trade and protectionism to the Iran nuclear deal, and the US withdrawal from the Paris Agreement. Moreover, the impending UK Brexit clouds projections.

In brief, both sides are posturing and transacting. The historical stress on “common values and interests” hasn’t crumbled but is eroding.

China ‘threatened with isolation’ by US-Mexico-Canada trade deal

In the Asia-Pacific, Trump killed the TPP on his first day in office. More recently, he has considered rejoining a revised TPP, but only if the US is granted a “better deal”. In turn, some TPP-11 participants hope Trump will prove a one-term president and US withdrawal will be reversed after 2020. Others have joined China-led talks on a Regional Comprehensive Economic Partnership.

Trump is likely to push a new Asia-Pacific alignment, which strategically will seek to cement America’s Indo-Pacific vision to contain China’s rise. Economically, it aspires to neutralise China’s Belt and Road Initiative. Militarily, it is exploiting the “freedom of navigation” doctrine to dominate the South China Sea.

The regional extension of the USMCA could prove more “moderate” than initially projected, but it would split the region, seek to undermine China and thus derail the highly-anticipated “Asian century”.

What Trump wants is an “America first” Asian century.

Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Centre (Singapore). See http://www.differencegroup.net/