WASHINGTON—The Trump administration is set to flex its muscles by convincing trading partners to pressure China. The revamped deal with Canada and Mexico is a clear sign that Washington is willing to isolate Beijing in a new global trade order by edging China out of trade deals with allies.
The new United States–Mexico–Canada Agreement (USMCA) contains a clause that aims to contain Beijing. The provision, which has attracted a lot of attention and praise, essentially blocks any trade flirtation with China.
“I thought that was a brilliant provision to put in the agreement, because that changes the whole parameters,” said Patrick Mulloy, a former member of the U.S.–China Economic and Security Review Commission and a former assistant secretary at the U.S. Department of Commerce.
According to the agreement, “entry by any Party into a free-trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice.”
The use of the phrase “non-market country” is a clear reference to China, since the United States last year reaffirmed it was a non-market economy. The European Union also opposes China’s recognition as a market economy.
“If you have a country that’s not a market economy, as China is, and it’s able to subsidize [its companies] and force technology transfers, I think it’s very important that they have a provision in the new agreement that covers that,” Mulloy said.
With a precedent now set, this provision could be replicated in other trade agreements, according to U.S. Commerce Secretary Wilbur Ross.
“It’s logical, it’s a kind of a poison pill,” Ross told Reuters. “People can come to understand that this is one of your prerequisites to make a deal.”
The United States is now in the early stages of negotiations for bilateral free trade with both Japan and the EU. Washington can gain further leverage over Beijing if it convinces partners to sign on to the same type of poison pill that aims at China.
It would signal that trading partners are fully aligned with Washington in its efforts to end the unfair economic and trade policies of Beijing.
In an op-ed for The Epoch Times, David Kilgour, former Canadian secretary of state for Asia-Pacific, says that the poison pill clause “effectively provides the United States a veto over any free trade deal the other partners wish to negotiate with China.”
After more than a year of negotiations, the United States, Canada, and Mexico agreed on Sept. 30 to sign a new trade accord to “terminate and replace” the 24-year-old North American Free Trade Agreement (NAFTA). The deal is the first major trade win for President Donald Trump, and it comes just before the midterm elections.
Trump also signed a new agreement last month that overhauled the old U.S.–Korea Free Trade Agreement (KORUS).
Since his election in 2016, Trump has made trade renegotiations and reducing the trade deficit priorities of his administration. To meet his objectives, he started imposing tariffs on steel, aluminum, and Chinese goods. His measures targeting autos and auto parts are still under consideration.
This year, the Trump administration has chosen to take a tougher stance on China’s decades-long protectionist and trade-distorting policies, and instituted a tariff campaign.
According to some trade experts, the tariffs and threats—no matter how confrontational and sometimes ugly they can get—are bearing fruit.
“I think it certainly has gotten China’s attention that we’ve got a problem,” Mulloy said.
“We had all these dialogues that went on for 15 to 16 years, and nothing was accomplished.
“The administration’s way in addressing these issues has certainly gotten people to think that we’ve got to resolve this matter.”
Beijing has been resorting to various tactics, including currency manipulation, industrial espionage, cybertheft, forced joint ventures in exchange for market access, and acquisition of foreign companies to attain sensitive technologies.
To tackle these problems, trade chiefs of the United States, Japan, and the EU met last month in New York and agreed to push for new rules and enforcement tools to end practices that undermine the global trade system. The trilateral partners also agreed to reform World Trade Organization (WTO) rules that are no longer effective.
The Trump administration has been frustrated by the organization, calling its rules outdated and insufficient to constrain China’s market-distorting behavior.
In 2000, President Bill Clinton permanently granted “most favored nation” status to China, which became a member of the WTO a year later.
The U.S. trade deficit with China has more than quadrupled since then, rising to $375 billion last year from $83 billion in 2000.
Due to the trade deficit with China, more than 3 million jobs were lost between 2001 and 2015, according to the Economic Policy Institute.
Trump has warned that he could withdraw the United States from the WTO.
“If they don’t shape up, I would withdraw from the WTO,” he said in an interview on Aug. 30.