Clause 32 of the USMCA is another big victory over China for Trump

Moving China away from Mexico (image from Wall Street Daily)

The ‘Clause 32’ in the latest USMCA (US-Mexico-Canada Agreement) masterminded by President Trump, according to Neil MacDonald (a Canadian analyst), specifies that “… if Canada wants a trade deal with China, it has to notify the Americans about any negotiations, and tell them the substance of those negotiations, and submit the text of any deal, “including any annexes and side instruments” in advance, for American scrutiny, and then, like a puppy, await Washington’s verdict…” The conclusion of MacDonald is that “Canada surrenders sovereignty to a bully.”

Beijing’s response, as expected, is unhappy. “… In a scathing statement, the Chinese Embassy in Ottawa says section 32.10 of the new USMCA amounts to an act of political dominance by the U.S., which it blames for inserting the clause some argue gives the Americans a veto over Canada and Mexico pursuing free trade with China …… China has no doubt it is the target of the clause, which requires an USMCA member country to provide notice and information to the other two partners if it plans free trade talks with a ‘non-market’ economy. It also gives the other partners a say in the text of such a deal…”

At least three points to note. First, although “China disputes that it is a non-market economy”, by using the West’s neoliberal standard, the Chinese economy is indeed a non-market one. Washington has tons of theories (from Adam Smith to Milton Friedman) to justify the labeling of China as an outsider. It means Beijing, in front of the Western world (e.g. OECD), has no tool in hand to fight, not even a screw driver.

Second, never mind about Canada, but Mexico matters. China can never be in good term with Canada for various reasons ranging from ideology to trade model. However, Mexico has huge potential to become a splendid trading and political partner of China as both are developing countries. Do not forget Mexican president Pena Nieto’s timely decision to participate into the BRICS business forum in Xiamen on Sept 3-5, 2017 which helped end the India-China Doklam standoff. Mexico has its own ground to accept Clause 32 since “… Mexico secured an agreement to have 232 tariffs suspended, so long as their auto exports don’t grow by more than 40 per cent — growth that would exceed U.S. production …” Anyway, the China-Mexico joint development from now on will be limited. It will be China, not Mexico, suffering more. So, the victory goes to Trump.

Third, the divide between Eurasia and Trans-Atlantic will go deeper. Britain, Australia and some other OECD countries are likely to renew trade agreements with Trump by having Clause 32 added. However, Beijing will fight hard to prevent many developing countries in Eastern Europe, Africa and Asia from taking the Clause 32. Given the thriving trading volume with China, Beijing has a chance to convince them not to accept this clause. The long term consequence is global division, rather than integration. The economic competition will be harsher, if not yet bloodier. Whatever favour Beijing has to offer to all these developing countries, the cost to China will be heavy. Therefore, it is another great victory to Trump who can really make America great again.

The opinions expressed are those of the author, and not necessarily those of China Daily Mail.

Categories: Trade & Investment

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