On the 19th of May, the would-be trade war of the century between the United States and China fizzled out and was transformed into something approximating a win-win agreement in which China was able to do what it had for months said it would do anyway (open domestic markets to foreign goods and capital including from the US) while Donald Trump got to save face and claim he was able to “pressure” China into making an agreement with Washington. Now that China and the US have reached a deal regarding the effective US ’embargo’ against Chinese mobile phone technology firm ZTE, it is clear that in the trade war of words between Washington and Beijing, Trump has few allies and yet in spite of this, China is willing to allow Trump the optics of victory while merely going about its business more or less as it was planning to do in any case.
The US Chamber of Commerce and the US business sector as a whole will have breathed a collective sigh of relief after the tariffs on Chinese goods that would have hurt US businesses indelibly reliant on these imports were put on ice. Likewise, the US agriculture industry which relies heavily on the Chinese market will also be thankful that a big blow to their industry has now subsided.
That being said, Trump continues to lust for a kind of zero-sum “big win” that China’s win-win model has disallowed. Because of this, he is clearly taking out his frustration originally directly primarily (key word) to China and pivoting it towards Washington’s traditional allies in the European Union, Canada, Mexico, South Korea and to a lesser extent Japan – a nation saved from the worst of Trump’s wrath due to the US leader’s fond personal friendship with Premier Shinzō Abe.
But while the psychological motivation for Trump’s trade war with the EU and fellow NAFTA members is clear, the reason he is able to get away with doing to his “allies” what he could not do with rival China is because while the US is heavily dependant on Chinese goods, it is less so on European and Canadian goods. Thus, while Trump has the classic protectionist idea that all foreign goods can be replaced almost entirely with domestically manufactured goods, the reality is that European and non-US North American goods will be replaced by a combination of Chinese goods, domestic US goods and from partners further afield including America’s other import partners across Asia.
In this sense, what was supposed to be a unipolar nationalist economic crusade has turned out to be a demonstration of how the US cannot make do without Asian goods, but it can cope comparatively (key word) easily without European or Canadian goods.
A chart of the amount of annual imports and exports from America’s top 30 global trading partners shows that Washington does in fact run trade deficits with the vast majority of its trading partners, including a heavily sanctioned Russia. While China remains America’s largest import partner, the EU imports more US goods than China. Thus, while Trump may subject US companies to losses when the EU officiates its reciprocal tariffs on the US, the reality is that European consumers will also suffer in ways that Chinese customers would not have done, had Trump followed through with his trade war against Beijing.
It cannot be emphasised enough that if the EU had worked harder to diversify its trading partnerships with China, Russia, Turkey, Iran, ASEAN and the major south Asian powers, not only would EU consumers have more options when some of the US goods they have become accustomed to either become unavailable or become too expensive, but even more importantly, the EU would be in a stronger position to leverage US threats with meaningful threats of its own. China was able to leverage the US threats and eventually see almost all of them off because of its strong domestic manufacturing sector and its world-wide trading partnerships. While the EU is a large and wealthy single market, it has been negligent in externalising its free trade mentality with developing nations and power Asian economies. The same is largely true of Canada which has been similarly complacent to the EU in this regard, although not quite as sheepish in the face of Asian tigers. When taken together with the fact that Asian imports remain more important as a supplement to the US domestic sector than those from the EU, it becomes clear that Trump has partly succeeded in backing America’s friends into an unfriendly corner.
Because of this, Trump is able to overlook the trade deficits that both the EU and his NAFTA partners run with the US in order to use them as whipping boys in the trade war that was supposed to centre on punishing China for its own success. In other words, even in spite of the trade deficits in the favour of Europe, Canada and Mexico, because these nations and mega-bloc don’t have anywhere to run to in terms of picking up the slack for lost exports to the US, Trump is banking on the EU and the rest of NAFTA to come crawling back to the negotiating table.
If the EU and Canada (Mexico is more hopeful in this respect) actually wanted to teach Trump the lessons in humility that French President Macon already implied the EU seeks to do, the only solution would be for Brussels to rapidly open up its markets to China with the ultimate goal of creating either a free trading agreement with Beijing or something very close to a free trading agreement. Likewise, the EU needs to immediately drop both its Russophobia and its Turkophobia. In respect of trade, that would mean dropping sanctions against Russia while working with rather than against Turkey to harmonise future industrial partnerships. Likewise, Europe has been negligent regarding the economic potential of countries like Pakistan, Kazakhstan, The Philippines, Malaysia, South Africa, Indonesia and others.
Unless the current leadership in Brussels and Ottawa are able to drop the neo-liberal dogma that once defined the entire western economic alliance, they will soon be left isolated between a wider global east and south embracing the win-win mentality of Chinese President Xi Jinping and a post-Obama United States that is guided by Donald Trump’s antiquated protectionism.
While it is natural to blame Trump for turning his back on modern economic realities, the EU and Canada must also share the blame in doing the same. Both neo-liberalism and protectionism are outdated and when it comes to stale milk, few are going to argue about which is more stale – they’ll simply go and replace it with fresh milk. In this case, the win-win model of 21st century globalism has far outshone the preferred models of Brussels and Washington. Whichever side realises this first will end up showing how in the 21st century, it is through eastern thinking by which the west can be won.