There was relief in financial markets when U.S. President Donald Trump recently called a truce in his trade war with China.
But the news is cold comfort to anyone who cares about the long-term health of global trade.
That’s because it now seems unlikely that Mr. Trump will succeed in getting China to fundamentally rein in its most egregious trade behaviour. That includes tactics such as using heavily subsidized state-owned enterprises as tools of economic imperialism, thwarting trade with opaque non-tariff barriers and severely limiting what foreign investors can buy in China.
At the recent G20 summit in Osaka, Japan, Mr. Trump indefinitely deferred a US$300-billion round of new tariffs in exchange for a vague promise from Chinese President Xi Jinping to buy more U.S. goods and allow more investment in China. He also eased recently imposed restrictions on U.S. companies doing business with Chinese technology giant Huawei, which U.S. authorities worry may be engaged in cyberspying.
Mr. Trump got precious little in return. While the two sides agreed to resume trade talks, there is no new deadline for reaching a deal.
The U.S.-China trade war has already been costly for the global economy. It has slowed trade flows and dampened global growth prospects.
The United States and China may yet reach a final agreement. But the nearer next year’s U.S. presidential election gets, the more likely Mr. Trump is to settle for a mainly cosmetic deal that provides some relief for U.S. farmers and doesn’t roil the stock market. So don’t expect any major concessions from China on state-owned companies, technology, investment or anything else.
“We’re right back on track,” Mr. Trump declared in Osaka.
It’s a familiar negotiating pattern for Mr. Trump: Talk tough, threaten, but eventually back off. He’s done it three times with China in the past eight months.
For Canada, this may be worst of all possible outcomes. Canada’s economy is still feeling the effects of U.S.-fuelled trade uncertainty. And it has been drawn into the U.S.-China showdown over Huawei, after the arrest in Vancouver last year of top Huawei executive Meng Wanzhou on a U.S. extradition request. In apparent retaliation, China has since blocked imports of canola and meat, worth billions of dollars a year to Canadian farmers.
Canada would reap the benefits if Mr. Trump’s standoff with China forces Beijing to play more by the rules of global trade. That would benefit the United States, but also every other country that does business with China.
Unfortunately, that isn’t the scenario that’s unfolding.
The recent truce maintains the status quo, including existing U.S. and Chinese tariffs, prolonging uncertainty for everyone else.
What the Trump administration is learning is that its economic leverage over China is relatively limited.
Trade experts have long worried that Mr. Trump did not have the resolve to get Beijing to fundamentally change the way it interacts with the world on trade. And with U.S. soybean farmers suffering the brunt of the tariff war, China may have found his main weakness. Mr. Trump and the Republicans need support in the U.S. farm belt to do well in next year’s election.
The lesson Mr. Trump should draw from all this is that bilateral negotiations may not be the best way to deal with China.
Sadly, Mr. Trump has shown a disdain for the obvious alternative – co-operating with traditional allies on trade. Rather than working to reform and strengthen the World Trade Organization, Mr. Trump and his administration have relentlessly attacked it and paralyzed its dispute-settlement system by blocking the appointment of new appeals judges.
The U.S. could use a little help from its friends in dealing with China, including the European Union, Japan, South Korea, Canada and others. The U.S. is a large market for China, but it’s hardly its only option. In 2018, 18 per cent of Chinese exports went to the U.S. Likewise, many of the goods China buys from the U.S. are readily available elsewhere, including soybeans, cars and commercial aircraft.
Taking on China requires more than bullying and sabre-rattling.
It calls for co-ordinated pressure from all the key trading partners that China’s economy needs to thrive.
Instead, the prolonged U.S.-China trade war is making us all poorer.