First tariffs, and now a move to isolate China in global trade. Can the US succeed?

George Magnus says America’s new trade agreement with Mexico and Canada contains two provisions – limiting currency manipulation and trade with a ‘non-market economy’ – drafted with China in mind, and could be used as a template for future accords

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Published: 3:04am, 16 Oct 2018Updated: 11:42am, 16 Oct 2018

US President Donald Trump’s stance on trade may be the most protectionist since the 1930s but in one respect, at least, it strikes a chord both within the Washington Beltway and in the wider world. It recognises that China is no longer just a major customer and formidable competitor but also an important adversary.

Back in the 1970s, US political scientist Edward Luttwak described the then economic threat posed to the United States by the likes of Germany and Japan as the “logic of conflict in the grammar of commerce”. Today’s Sino-US trade relationship could not be described more aptly.

The White House’s use of trade tariffs as a tool is contentious, and China itself will have to consider new and most likely contentious ways of responding to any further broadening of tariffs by the US. These could include more significant currency depreciation or imposing restraints over US firms in China. We might also see trade conflict spill over into other non-commercial areas.

What this all amounts to is an acceptance that the trade conflict with China nowadays is fundamentally and existentially about the struggle for technological and military supremacy, and the acceptability of rules and regulations in the pursuit of industrial policy, including joint venture and technology transfer conditions, preferential treatment of local companies, and the role played by state enterprises.

Watch: Goodbye Nafta, hello USMCA

In this context, the recently revised trade agreement between the US, Mexico and Canada (USMCA), which is designed to replace the North America Free Trade Agreement, also sheds useful light on the conflict.