As part of the United States’ effort to contain its main global rival, President Trump’s administration is trying to secure the power to prevent the United Kingdom and the European Union from so much as negotiating trade agreements with China. Although a post-Brexit UK will probably have little choice but to follow Canada’s lead and comply, the EU is big enough to say no.
Two recent developments are bringing America’s China trade strategy into focus. The first one – the decision of US President Donald Trump to abandon his bluster for China’s vague promises to enforce property rights, loosen restrictions on foreign investment, and stop pressuring foreign companies to share their technology, affects bilateral trade negotiations. Unlike this not-so-surprising development, the second one, which concerns US allies, is more revealing – and trecherous.
In the last few months, the Trump administration has released its negotiating objectives for a possible trade agreement with the United Kingdom after Brexit, as well as future talks with the European Union. Most of those objectives are not particularly surprising; they seek to maximize access to the UK or EU markets, while protecting sensitive US sectors. But they also include one highly unusual provision. In its document on the EU, the US states its intention to secure “a mechanism to ensure transparency and take appropriate action if the EU negotiates a free-trade agreement with a non-market country.”
The “non-market country” is no doubt China. If the EU agrees to this demand, it would have to inform the US – which would have the right to intervene, even if it is merely negotiating a trade deal with the world’s second-largest economy. While the EU currently has no intention of entering into a free-trade agreement with China, still, as a matter of principle, Brussels is highly unlikely to accept such a clause. Moreover, given that the EU is actually a bigger global trading power than the US, it is in a position to say no.
There can be no economic justification for the US to object to one of its allies concluding a free-trade agreement with another country, even one without a pure market economy. Economic analysis has shown that regional trade agreements can have ambiguous effects on third countries. This is why such deals are subject to Article XXIV of the World Trade Organization (WTO), which stipulates that regional free-trade agreements should cover “substantially all the trade” between the relevant partners.
But the US attempt to control its allies’ trade policy towards China is not driven by economic considerations. Rather, it represents a geo-strategic effort to isolate China, thereby giving the US more leverage with its main global rival. But this is not the first time that economic weapons are being deployed in a great power rivalry. Though the French army during Napoleon reign in early 19th century had vanquished most other powers on the European continent, he still could not force his will upon the British, whose navy dominated the seas.
So, at the peak of his military success, Napoleon erected the so-called Continental Blockade, forbidding any territory he ruled from trading with Britain, including even Russia. To punish the Russians who eventually disregarded the blockade and reopened its ports to the British,
Napoleon took this as a casus belli and invaded Russia. The rest, as the saying goes, is history. Napoleon’s imperial overreach was his undoing. If Trump sticks to his current course on trade policy, the US may well face a similar fate.
‚Trump’s Imperial Overreach on Trade‘ – Opinion by Daniel Gros – Project Syndicate.