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US economy

Big questions over Trump’s trade war with China

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It is not difficult to identify some of the big contradictions in Donald Trump’s trade war with China, writes James Politi in Washington.

The most glaring, perhaps, is that America’s trade deficit with Beijing — the US president’s primary yardstick for success in international economics — has risen since he began ratcheting up tariffs on Beijing, when he had promised to bring it down.

Another is that Mr Trump’s levies have inflicted more damage to his political base in America’s industrial and agricultural heartland than he would acknowledge. Even steel companies, which should be the biggest beneficiaries of his protectionist policies, have suffered from falling equity prices and stagnant jobs growth, according to a New York Times analysis last month.

But the greatest paradox may be that if Mr Trump gets everything he wants in his negotiations with Beijing, this may encourage US multinationals to do more business with China, not less.

Robert Lighthizer, the US trade representative, and Steven Mnuchin, the US Treasury secretary, are heading into the next round of talks this week, ahead of the March 1 deadline to reach an agreement and prevent a new hike in tariffs. They are asking China to stop enabling the theft or forced transfer of intellectual property and technology secrets from US businesses operating in China, and want China to loosen restrictions on foreign investment and foreign ownership of Chinese companies.

They are also pushing Beijing to slash regulations that discriminate against foreign investors, thereby making it easier for US companies to gain regulatory approvals. And they are demanding a clampdown on industrial subsidies and the preferential treatment given by Beijing to state-owned enterprises.

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Previous administrations, including those run by Barack Obama and George W Bush, tried and mostly failed to address these frustrations, which is why they are still on the agenda. The main difference now is that, with tariffs, Mr Trump has been willing to use a radically different and brazen tactic to try to force change.

There is little doubt that if Mr Trump does reach a deal with Xi Jinping, his Chinese counterpart, that resolves even part of these problems, corporate America will have scored a big win which will make it easier to access the huge Chinese market.

Ironically, because of rising tensions with Beijing over the past year, some US companies have already started shifting their supply chains out of China, which is the long-term goal of trade hawks within the administration. But only the failure of the negotiations — and higher tariffs — would ensure the continuation of that trend.

Tomato spat

Mexico is struggling to get any respite from the Trump administration, writes Jude Webber in Mexico City.

After the US-Mexico-Canada Agreement, the trade deal replacing Nafta, was signed on November 30 following months of tough negotiations, one could have hoped for some calm in North American trade relations this year.

But the US has failed to scrap steel and aluminium tariffs on its neighbours, as both Canada and Mexico had hoped for, and fired a new salvo at Mexico last week over tomatoes.

Amid huge pressure from Florida tomato growers — and Republican politicians in the crucial swing state — the US decided to end an agreement with Mexico to suspend its anti-dumping investigation into tomato imports into the US, which dated back to the Obama administration. The tomato spat is the first major trade challenge for Graciela Márquez, Mexico’s new economy minister.

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The economy ministry said Mexican producers had “entirely fulfilled” the terms of the 2013 suspension agreement, under which Mexican tomato exports to the US grew 12.5 per cent — but said nothing about how it planned to try to lobby Washington to reconsider.

Figure of the week — $1.8bn

Mexican tomato exports to the US that could be subject to anti-dumping duties after the Trump administration’s move last week.

Chart of the week

US port activity suggests that exports have fallen sharply, showing that trade slowdown is becoming real (Panjiva)

Further reading


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