Aug 29, 2018

How Trump's hardline trade strategy could blow up

Illustration: Lazaro Gamio/Axios

President Trump's hard-ball, America-First negotiating tactics may produce a new agreement on NAFTA as early as Friday, but history suggests he could be creating bad blood against the U.S. for years or longer.

The bottom line: Hard-ball is a negotiating tactic with usually limited results — you win applause at home, but at the receiving end, no one is laughing. "Playing a game in which the other side looks like a loser makes potential partners less likely to subject themselves to the same fate," said Richard Fontaine, president of the Center for a New American Security.

Fontaine added: "It’s also unnecessary: Trade is the quintessential win-win activity — transactions only take place, after all, if both sides believe they will gain."

What they're saying: Over the centuries, arm-twisting and coerced deals have often come back to haunt the bully involved, experts say.

  • Beijing treats the 19th century Opium Wars, in which Britain and France forced China to open to trade under humiliating terms, as though they were yesterday.
  • Hitler arose after the crushing terms ending World War I: "[T]he mother of all unequal treaties was the Treaty of Versailles, and we know what happened to that,"  said Gary Hufbauer, of the Peterson Institute for International Economics. 
  • "British and French agreements' with their colonies were generally rejected soon after independence."

The big picture: On Monday, Trump announced an apparent coup, saying he had pried Mexico away from Canada and reached a handshake agreement on a new NAFTA formulation comprised almost totally of concessions by Mexico. Until then, Canadian and Mexican leaders had insisted that no deal with Trump was possible unless it was trilateral.

Then Trump gave Canada an ultimatum: Sign the agreement by Friday, with whatever tweaks it could muster with the White House, or Trump would complete the deal with Mexico and without Canada. Oh, and, after that, he would levy tariffs on Canadian-made cars.

  • Canadian foreign minister Chrystia Freeland cut short a European trip yesterday and flew into Washington, DC. In remarks this afternoon, both Freeland and Trump suggested a deal was possible.
  • If a deal is struck and gets its necessary legislative approvals in the three capitals, that would be Trump's second coup in a week.
  • The reshaping of the deal would provide Trump with hefty bragging rights going into the November midterms, given his frequent vows during the 2016 campaign to redo or kill NAFTA.

Next, though he may not act until after the midterms, Trump is likely to tighten the screws on China.

A new trade agreement with Beijing could take a lot longer — last week, experts told Axios that the U.S.-China trade war could last a year or beyond.

  • Unlike Canada and Mexico, China is not an economic small fry, and leader Xi Jinping has the advantage of a hold on North Korea, with which Trump desperately wants an agreement on nuclear arms.
  • Xi "doesn’t want a fight," Ian Bremmer, president of the Eurasia Group, tells Axios. "They were offering to increase purchases of U.S. goods before. They’re almost certain to put more on the table going forward." 
  • Yet the betting remains that China will be a tough nut to crack.

"There are already repercussions from Trump's aggressive negotiating stance," Douglas Irwin, an economic historian at Dartmouth College, tells Axios.

  • "Almost no other country wants to negotiate a trade agreement with the United States because they know the administration will make impossible demands, or demands that end up restricting trade."

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