Trump Now Focusing on China, Emboldened After NAFTA 2.0 Deal

Closing a trade deal with Canada and Mexico with the threat of tariffs on the auto sector has emboldened President Donald Trump for his battle with China, said Edward Alden, a senior fellow at the Council on Foreign Relations. "I think the most interesting thing that Donald Trump said in his press conference yesterday is that he made it very clear that he sees the tariffs he put in place as negotiating leverage," Alden said on a conference call with reporters Oct. 2.

Trump had said on Oct. 1: "Without tariffs, we wouldn't be talking about a [North America] deal, just for those babies out there that keep talking about tariffs." He also said that Japan, India and Europe all came to the table because they fear tariffs. He said Japan had resisted doing bilateral talks, and he told them: "You don't have to negotiate, but we're going to put a very, very substantial tax on your cars if you don't." Trump also said he thinks negotiations with the European Union will be successful. Because of "the power that we have with tariffs, we, in many cases, won't even have to use them," he said.

Alden said there's been a hot debate in the trade community on whether Trump's heavy use of tariffs is a negotiating tactic, or whether he'd prefer to keep tariffs for years, in order to force changes in supply chains. Alden thinks it's now clear it's the former.

Trump said the $250 billion in Chinese goods that have higher tariffs has made China eager to negotiate. "China wants to talk very badly," he said. "And I said, 'Frankly, it's too early to talk.' Can't talk now, because they're not ready. Because they've been ripping us [off] for so many years. It doesn't happen that quickly. And if, politically, people force it too quickly, you're not going to make the right deal for our workers and for our country. "

Alden said he doesn't "have a good sense of when this gets engaged with China." But he said that, with regard to tariffs, "I think he's going to double down with China."

The new NAFTA has language about currency manipulation, state-owned enterprises, intellectual property theft -- all issues that are problematic in the U.S.-China trading relationship, but not in North America.

Larry Kudlow, director of the National Economic Council in the White House, speaking to reporters Oct. 2, said with the NAFTA rewrite, "the continent as a whole now stands united against what I'm going to call unfair trading practices by you know who, starts with a 'C' and ends with an 'A.'"

The new NAFTA also tells Canada and Mexico that if they were to start negotiations to create a free trade deal with a "non-market economy," the other parties must be notified, and they would have the option to terminate the U.S.-Mexico-Canada Agreement.

Alden said the Canadian government had explored, in preliminary way, negotiating a free trade agreement with China. He said China would like that, as an end-run around America, but even the possibility was controversial in Canada. "I don't know how serious the likelihood of a deal like this was," he said, but the agreement now forecloses it.