What China Should Learn From Trump’s Handling of NAFTA

Now that the White House has claimed a victory in renegotiating NAFTA — rebranded as the U.S.-Mexico-Canada Agreement, or USMCA –President Donald Trump is once again eyeing China, ramping up his rhetoric about tariffs and trade as the two countries prepare to forge new economic relationships.

While acknowledging areas of cooperation between Beijing and Washington, Vice President Mike Pence on Thursday breathed new fire into the Sino-skeptic rhetoric that was a pillar of Trump’s presidential campaign. In prepared remarks at the Hudson Institute, he blasted China’s Communist Party for employing an “arsenal of policies inconsistent with free and fair trade,” including tariffs and intellectual property theft, and added that Russia’s efforts to undermine the 2016 election “pales in comparison to what China is doing across this country.”

Pence’s remarks came hours after NPR released an interview with Chinese Ambassador to the U.S. Cui Tiankai, who also gave a nod to areas of collaboration before he criticized the Trump administration for what his government considers a disjointed and unclear approach to forging new relations with China. Tiankai cited flip-flops in tentative agreements with trade representatives including U.S. Treasury Secretary Steven Mnuchin and an apparent expectation from the White House that “the U.S. will get 100 percent and China will get zero.”

Amy Celico previously served as the senior director for China Affairs at the Office of the U.S. Trade Representative where she helped lead negotiations with Beijing, and now oversees the China team at the Albright Stonebridge Group. She spoke with U.S. News from Washington about what China has learned from the events of the last two weeks and how the tenuous relationship between superpowers on opposite sides of the Pacific will likely play out.

This interview has been edited for clarity.

What do you think the Chinese have learned about the Trump administration from the outcome of the NAFTA negotiations, and its rhetoric this week?

It’s instructive for China to look at how the new NAFTA was negotiated and what was achieved. On the one hand, authorities in Beijing are likely more nervous having watched the president successfully pressure Mexico and Canada to make concessions they didn’t want to make. On the other hand, I think leaders in Beijing are also trying to look at exactly what the U.S. achieved in the new NAFTA terms. In fact, it isn’t that much.

There are new terms. The U.S. did have to give something — the Canadians absolutely insisted on the dispute resolution mechanism. And so there are elements of TPP (the Trans-Pacific Partnership) in there. The Chinese can take from that, that this will be a negotiation with the U.S. However, the rhetoric coming out of these negotiations that President Trump is espousing in particular, but his entire admin is also, is “We got our allies to get in line with American priorities. This is a total victory for the U.S.”

Many analysts would say, “It’s not super different from the old NAFTA.” So maybe not a massive victory but President Trump is claiming victory, and I do think that’s instructive for the Chinese. If they’re willing to deal with President Trump as not only the Canadians or Mexicans did, but also how South Koreans, the Japanese, the Germans, the EU writ large have all been forced to do, and demonstrate they’re willing to give up something and allow the U.S. to declare victory, maybe it won’t be as onerous as anticipated.

What would China be able to give up to appease the U.S.?

This is where it really gets hard. At least Canada and Mexico have very specific terms in the old NAFTA as well as their strongly held positions in the new NAFTA negotiations. China hasn’t really been willing to come forward — other than purchase agreements — with specific market openings.

They talk about speeding up scheduled reforms, but we’re getting some promise fatigue here in the business community waiting for China to enact a lot of these.

In these negotiations, I honestly think the administration is going to say, “That’s not enough.” You can’t commit to liberalizations. China will have to take very specific steps, and I don’t think there is a big appetite in Beijing to get into specificity with the U.S. side because it would be seen as a concession. I think that’s where China is very different than NAFTA negotiation or even our free trade agreements with South Koreans and talks with the Europeans.

We’ve pushed China into a corner in some ways through this tough talk. Pence’s speech is going to make everything more difficult.

The Chinese ambassador told NPR that Beijing believes “the U.S. position (on trade) keeps changing.” How clearly does China appear to understand what the U.S. wants now, and does that differ from the foreign policy themes of prior U.S. administrations?

There absolutely are consistent themes, and these themes are, “We don’t want China to be stealing intellectual property, we don’t want them to be forcing a technology transfer as the price of entry into the China market.” These aren’t new demands from the Trump administration to the Chinese. They heard exactly the same thing from the last administration.

However, it is fair criticism from the Chinese side that the U.S. hasn’t been explicit in what China can do to end the friction short of abandoning its state-driven mercantilist economic policies. That’s pretty broad.

So, earlier, in the administration, the Chinese and the U.S. side agreed to joint purchases when the Chinese side really did think President Trump was focused on the trade deficit. So, buying more goods, and some services from the U.S. would help remedy that deficit. That turned out not to be enough.

I do think Ambassador Cui isn’t wrong when the Chinese have been told different things at different times about what the U.S. side wants. But it is completely disingenuous that he doesn’t understand some of the longstanding concerns the U.S. has about how China is unfairly treating American companies in the market. China has failed to acknowledge that level of unfairness, just like it’s failed to acknowledge that it has been manipulating global trade rules to advantage China.

So does the Trump administration appear to have a clear sense now of what it wants from China?

I do think the U.S. trade representative has been very consistent in trying to really tackle these longstanding issues with China’s unfair trade practices. However, there are broader themes that are emanating from different parts of this administration that are even bigger than unfair trade practices. And it comes down to whether China is competing with the U.S. unfairly and putting undue influence on either our political system or making the Asia-Pacific region less secure through its military actions and rhetorical policy.

This administration has a longer list of complaints with the Chinese government. So on trade policy, it’s true, there have been different factions within the administration who prioritize different things, but I do think the Office of the U.S. Trade Representative has been pretty clear in saying what it wants to change. Some of that is global supply chains, and that’s trying to get U.S. companies out of China.

What effect do changes in U.S.-Chinese trade relations have on other elements of foreign policy?

If we’re looking at the U.S.-China trade relationship, a relationship that is almost 40 years old in a normalized state, for over 30 years the trade relationship is often used as a ballast for the other relationships. What I mean by that is, despite agreements on human rights, military modernization, foreign policy disputes with Taiwan, despite challenges the U.S. and China had, trade relations and commercial ties were growing, were getting stronger, were bringing our economies together and were mutually beneficial for many, many years.

So trade was always the bright spot. You would talk about Taiwan policy or religious freedom issues, military to military cooperation which has been at a very low level and say, “Wow, this relationship is doomed. We have distinct political systems that are not complementary.”

READ: [China’s Lock on Prescription Supply a Weapon in Trump’s Trade War]

And then you had trade, and it had a very positive effect on the positive relationship, until about six years ago. I would pinpoint even before Xi Jinping became president, there was a shift in China that stopped continuing to open up to the outside world, and started in some ways to game the system to advantage domestic Chinese companies.

Because China is this incredible growth story on the economic side, and I think the government made a decision that they had to make sure Chinese industry benefits, not just foreign companies operating in the China market. Every country says that, but China joined the World Trade Organization, they signed up to rules they started to not follow as closely.

What you have now is trade as a major irritant in the overall relationship, rather than … a stabilizing force. We’re without a positive commercial relationship players in both economies saying, “We want this because it’s good for U.S.-China relations and its good for our industry.” That is replaced by a U.S. administration saying, “We are competitors, not in a marked sense, competition is good to us, but rivals, and we are worried about China’s growth and we are worried about China’s development that could adversely affect the U.S.”

This comes back to Vice President Pence’s speech. This is the rhetoric the U.S. is laying out which is wholly different than their predecessors — Republican and Democrat over the last 40 years. We always had this foundation of, “we have to have this constructive relationship with China because we have more common interests than differences.” Trade was just one of them but it was a bright example of common interest.

Now the administration is saying, “These guys are bad for America.”

So if that’s true, and if this change began during the Obama administration when a central focus of U.S. foreign policy was reaching out to China, why not turn up the heat now?

Well that’s why you have bipartisan support in the U.S. to say, “Be tougher with China.” Had there been a Hillary Clinton administration, or whichever Democrat administration comes into being, they would be tougher on China for precisely what you just said.

We feel like we’ve been good faith actors promoting constructive relations with China. But the benefits are decreasing, as China continues to manipulate global rules.

That is why it is very challenging to argue against what the administration is doing broadly. Getting tough on China has broad support, on Capitol Hill, in the administration, among most China watchers.

It’s just the tactics where many of us disagree. The vice president’s hyperbolic and highly critical speech is going to make it much more challenging to make a deal with the Chinese on trade. This speech was a public shaming of bad Chinese behavior, more akin to a Cold War-era speech about the Soviet Union than any speech about China delivered by a high-level American official over the past 25 years. Much like the tit-for-tat tariffs we are engaged in, response to and defense of this China speech will likely lead to punitive measures taken by both sides and a more confrontational and antagonistic relationship, rather than a way forward to address the real concerns Americans have with China’s unfair trade practices.

What effect does this dispute have on other countries in the region?

It’s very challenging for regional players. While I’m quite sure some if not all of these economies want a strong U.S. to balance China’s growing influence, most of them, their No. 1 trade relationship is with China right now. And so they need to balance this relationship and if there is hostility between the U.S. and China and they’re forced to take sides, that will put them in a very very uncomfortable position, because they don’t want to do that. Even countries like Japan, which is our staunchest ally in the region, they have a historically terrible relationship with China. I think Prime Minister Shinzo Abe recognizes the need to have a more constructive relationship with China in part because his relationship with the United States continues to be challenging for Japan.

We are starting negotiations on a bilateral free trade agreement which was a goal of the Trump administration. I’m sure they really did have to twist Japan’s arm to get that agreement. But Japan is caught in a difficult situation between the two biggest economies in the world, and theirs is the third largest. So they have a large stake in the U.S. and China not devolving into an openly hostile relationship.

More from U.S. News

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Xi Doesn’t Blink as Trump Touts Tariffs

What China Should Learn From Trump’s Handling of NAFTA originally appeared on usnews.com

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