Trump embarks on bilateral trade talks to pressure China

US President Donald Trump has repeatedly accused several trading partners, including Europe and China, of artificially weakening their currency to make exports cheaper. PHOTO: REUTERS

WASHINGTON (NYTIMES) - Fresh off securing trade agreements with South Korea, Canada and Mexico, President Donald Trump is embarking on a new plan: refashioning the Trans-Pacific Partnership (TPP) to his liking through a flurry of bilateral trade deals.

Trump, who pulled the United States out of the trade pact with 11 other countries that he has called a "rape of our country," is now looking to forge deeper trade ties with several of the nations in the alliance, as well as the European Union and the United Kingdom.

But while the TPP was aimed at encouraging China to make the extensive economic and structural overhauls that would someday win it a place in the trade pact, Trump views these new bilateral agreements as a way to contain Beijing's growing economic, geopolitical and territorial ambitions.

The White House gave formal notification to Congress this week that it would begin trade talks with Japan, the European Union and the United Kingdom. And the administration also has its sights on free trade agreements with the Philippines and Vietnam, as part of its effort to fence in China with agreements in its backyard.

The effort comes amid rising economic and national security tension between the United States and China and before a potential meeting in November between Trump and President Xi Jinping of China.

The administration has already imposed three rounds of tariffs on a total of US$250 billion (S$345 billion) a year worth of Chinese goods in an intellectual property dispute; imposed additional tariffs on Chinese steel, aluminuum and washing machines; tightened national security restrictions on Chinese investment in sensitive sectors of the American economy; and stepped up foreign aid with a goal of offsetting China's rising influence in the developing world.

China is racing ahead with its own plan for somewhat more free trade in Asia through the Regional Comprehensive Economic Partnership, which would sharply reduce tariffs on trade within Asia, tying Asian markets more closely to China.

The Chinese-backed pact is taking shape as a fairly narrow trade agreement, however. Unlike the TPP or the bilateral free trade agreements envisioned by the Trump administration, it would not impose minimum labor standards or restrictions on state-owned enterprises.

The Trump administration views the labour, manufacturing and other concessions it won in the United States-Mexico-Canada Agreement (USMCA), which replaces the North American Free Trade Agreement, as a template for future trade deals, particularly with Asia.

Among the most important provisions the White House wants to replicate in future deals is imposing limits on the ability of trading partners to strike separate deals with China.

The new pact with Mexico and Canada severely limits their ability to reach separate free-trade deals with a nonmarket economy - a provision clearly aimed at Beijing.

Negotiating similar language in agreements with China's neighbours could pose a particular challenge to Beijing's efforts to more closely tie itself to other Asian nations.

Earlier this month, an official with the Chinese Embassy in Canada called the provision "dishonest behaviour" that undermines national sovereignty.

The administration also wants to bake in the potential to renegotiate trade deals more frequently so the United States can ensure trade terms remain in its favour.

The USMCA has a fixed term of 16 years, which means the United States could ask for another round of trade concessions at its expiration. That emphasis on renegotiation partly comes out of the American experience with China, which entered the World Trade Organization on terms tailored for developing countries.

It has since turned into the world's largest manufacturer but still keeps the provisions that allow it to maintain high barriers to imports.

The USMCA also excludes state-owned enterprises, of which China has many, from benefiting from lower tariffs. And it contains a prohibition on currency manipulation, which the administration wants to push for in other trade deals.

Trump has repeatedly accused several trading partners, including Europe and China, of artificially weakening their currency to make exports cheaper.

On Wednesday, the Treasury Department said China, Germany, India, Japan, Korea and Switzerland would remain on its "monitoring list" for potential currency manipulation but declined to officially label any nation a currency manipulator.

While Treasury determined that China's direct intervention to reduce the value of its currency has been "limited," it said Beijing's practices deserve ongoing scrutiny.

"Of particular concern are China's lack of currency transparency and recent weakness in the currency," Steven Mnuchin, the Treasury secretary, said in a statement. "These pose major challenges to achieving fairer and more balanced trade, and we will continue to monitor and review China's currency practices, including ongoing discussions with the People's Bank of China."

Last week, Steven Mnuchin, the Treasury secretary, signalled at the World Bank and International Monetary Fund annual meetings that the United States would look to make the deal with Mexico and Canada a model for future agreements.

Pointing to the currency provision in the deal during an interview with CNBC, he said, "That's going to be important going forward for trade negotiations."

Whether the Trump administration can secure such provisions in future trade deals remains to be seen. But Trump, emboldened by recent trade "wins" secured by the threat of automobile tariffs, is preparing to test with more formidable economies his strategy of pummeling trade partners into submission.

Over the summer, Trump threatened "tremendous retribution" against Europe in the form of car tariffs, before backing off before negotiations. During the talks with Canada last month, Trump repeatedly threatened to tax Canadian cars, even suggesting that tariffs could be better than a deal.

On Wednesday, Wilbur Ross, the commerce secretary, expressed frustration with the pace of talks and suggested intransigence on the part of the European Union. "The president's patience is not unlimited," Ross told reporters in Brussels after a meeting with senior European officials.

Earlier Wednesday, Cecilia Malmstrom, the European trade commissioner, said the United States "has not shown any big interest" in an offer by Brussels to begin discussing a limited agreement focused on industrial goods.

"The ball is in their court," she said.

The administration's preference for striking bilateral deals is prompting criticism from some former trade officials, who warn that such agreements are likely to be narrower and foster less investment and long-term cooperation than the broad trading bloc envisioned by the Obama administration with the TPP.

"I think it is likely to be much more difficult to get the same strategic and architectural benefits out of a series of bilateral agreements as you might out of a major regional agreement, and certainly not in the same time frame," said Michael Froman, who was the US trade representative in the second term of the Obama administration.

And the administration's desire to reach a trade deal with the Philippines could also prove to be contentious.

Since winning election two years ago, President Rodrigo Duterte has emerged as a human rights pariah for authorising extrajudicial killings as part of a crackdown on his country's epidemic of methamphetamines and other drugs.

Opening negotiations with the Philippines could prove especially problematic as the United States grapples with maintaining its economic and diplomatic ties to Saudi Arabia after the disappearance of a Saudi dissident journalist in Turkey this month.

The administration is already under fire for prioritising financial ties above concern for the journalist, Jamal Khashoggi, who the Turks say was killed by the Saudis.

Democrats, who could win control of the House of Representatives in November's elections, are already gearing up for a trade fight with Trump and rejecting any US embrace of Duterte on trade. Finalising a major trade pact without bipartisan support would be impossible next year if Republicans lose either the House or the Senate.

"This is yet another example of President Trump admiring and rewarding authoritarians," said Democratic Representative Lloyd Doggett, in reference to speculation that talks with the Philippines could soon begin.

The Philippines was excluded from the Obama-era TPP because its high tariffs and other trade barriers for keeping out foreign competition appeared to be an insurmountable obstacle. Strong interest groups in the Philippines want to keep those trade barriers, including wealthy families that own companies that benefit from limiting foreign competition.

Instead, the United States turned its attention to Vietnam, which also has high trade barriers, but which the Obama administration viewed as a unified Communist government with the political will to force through market-opening measures.

"The work has already been done," said Chad Bown, an economist at the Peterson Institute for International Economics, noting that a detailed outline of new trading terms had already been drawn for a developing country such as Vietnam. "It makes sense to go back to them."

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