So far, President Trump has issued some 73 executive orders or memoranda since January 20. Two of them—one on trade followed by another on cross-border investment—leave little doubt of a decidedly ominous turn in America’s policy toward China. With retaliation by China likely, an unrelenting progression of conflict escalation now seems unavoidable.
Signed with a flourish on his first day back in office, Donald Trump’s “America First Trade Policy ” upped the ante on the trade war he launched with China in 2018. Significantly, AFTP is broader in scope than his first effort in that it also puts pressure on Mexico, Canada, and, most likely, Europe. Nevertheless, there is little doubt that China remains in Trump’s crosshairs. US tariffs on all products shipped from China have been raised by 10% on top of pre-existing tariffs of 19% on two-thirds of Chinese imports; moreover, just as I was about to post this dispatch, the President added another 10% to US tariffs on China—a move that will undoubtedly provoke further retaliation from Beijing. Additionally, a steep bounty has been proposed for Chinese shipping, levied on exporters or ships made in China.
Even more important, the AFTP framed America’s trade threat more in multilateral terms than as primarily a bilateral problem made in China. Under the national security provisions of Section 232 of the US Trade Act of 1974, across-the-board tariff hikes were imposed on imports of aluminum and steel (with hints of more to come on copper), and Mexico was warned of further adverse consequences of providing China with an end-around re-export conduit into US markets. And, as I wrote last week, a related effort, Trump’s so-called Reciprocal Tariff Plan put an explanation point on a more expansive version of multilateral protectionism; in doing so, however, there can be no mistaking the linchpin role he incorrectly assigns to China as the highly-levered bilateral fix to America’s multilateral trade problem. Never mind that it hasn’t worked yet and is unlikely to do so in the future—Donald Trump is undeterred in his China bashing.
All of this is now “old news” in the time-warp of Trump 2.0. The latest major development on America’s foreign economic policy front came in the form of a February 21 pronouncement—the “America First Investment Policy.” As a companion effort to the trade policy initiative, AFIP focuses on the need to restrict foreign investment flows into the United States, again with a special emphasis on China; singled out was the review process under CFIUS (the multi-agency Committee on Foreign Investment in the United States), drawing special attention to potential Chinese purchases of US assets in technology, infrastructure, healthcare, agriculture, energy, raw materials, and other strategic sectors. AFIP also warned US pension and endowment funds of investing in Chinese financial assets, and threatened a review of the 1984 US tax treaty with China, including the possibility of endorsing growing bipartisan sentiment in favor of ending the “Most Favored Nation” status that China has enjoyed under US law since 1980.
In examining the broad thrust of US economic policy toward China it is important to put these two complementary efforts together—both the AFTP and the AFIP. From that more expansive perspective, there can be no mistaking the important difference between the anti-China policy thrust of Trump 1.0 and that which is now unfolding in Trump 2.0. The first time around, the Trump Administration followed a well-scripted sequencing of bilateral tariffs as stipulated under the provisions of Section 301 of the US Trade Act of 1974; after a seven-month investigation, the US Trade Representative (Robert Lighthizer) produced a 182-page detailed report (with five appendices) that then became the justification for the tariff actions to come.
This time, it’s full steam ahead: The role of USTR has been marginalized; the report preparation time has been shortened (to about two months for the AFTP); tariff increments are likely to be larger than the gradual phase-ins of 2018-19; and the scope of the approach has been broadened from bilateral trade to cross-border investment flows. This latter point is particularly disappointing for those of us who have long argued for a shift away from a zero-sum fixation on bilateral trade balances toward a positive-sum focus on a lowering of investment barriers through market-opening pro-growth measures such as a bilateral investment treaty. The AFTP-AFIP combination effectively dashes those hopes.
There is one other critical aspect to Trump’s latest package of anti-China policy proposals that is a particularly ominous portent of what lies ahead for the Sino-American conflict. In the AFIP memorandum of February 21, President Trump makes explicit reference to China as America’s major “foreign adversary.” This is a clear escalation from the pre-existing national security characterization of the Biden Administration which described China as America’s “most consequential geopolitical challenge.” It also represents a major shift in the assessment of China in the first Trump Administration, which clung to the notion of China as a “strategic competitor,” albeit lumping it with Russia as a “revisionist power.” This steady drumbeat of conflict escalation underscores my own long-standing concerns of a classic cold war struggle between the United States and China that I detailed in Chapter 6 of Accidental Conflict. The twin efforts of Trump 2.0—the AFTP and the AFIP—reinforce that conclusion.
There are many caveats to America’s anti-China policy tilt evident in the early days of Trump 2.0, not the least of which is that this shift is a head fake—a stalking horse for the endgame of a “grand deal” with China. I hear this all the time when it comes to Donald Trump’s mastery of the so-called art of the deal, the title, of course, of his best-selling 1987 book. It’s based on the idea that extreme proposals offer the best opportunities for compromise. Is that the silver lining of the dark clouds now looming over the US-China relationship? Could that also be the case when it comes to Trump’s other bold initiatives that are currently on the table—namely, one in the Middle East, turning Gaza into a real estate development and the other in Ukraine, ending the war with Russia through Ukraine’s agreement to a rare-earth reparations scheme?
Don’t count on it. While anything is possible, it is important to stress that Trump’s track record as a dealmaker while president is not exactly encouraging in thinking about a possible grand deal with China. Two earlier deals struck in his first term in office—the USMCA successor to NAFTA and the so-called Phase I Trade Deal with China—didn’t exactly conform to Trump’s artful script. While Trump initially characterized these efforts as “the greatest deals in history,” they both either failed or have now been judged by the President, himself, to be in need of serious modifications.
The task in this case is to separate political bluster from the substance of a major shift in US-China policy. Trump’s deep-rooted fixation on the China threat long predates his first term in office. It has been a consistent and deeply held view that is central to his portrayal of what is so terribly wrong with the US economy. It follows that addressing the China threat must be equally central to his commitment to Make America Great Again.
It doesn’t matter that I and others reject this line of thinking. What matters most is the depth of the President’s conviction. Donald Trump has invested a huge amount of political capital in his anti-China stance, reinforced by the unwavering support of his MAGA base and a hawkish team of China advisors. And now, he is delivering as promised—with twin proposals on America First Trade and Investment that are tightly aligned with his core anti-China views. The President has painted himself into a corner. Don’t bother reading his lips.
Next: Economic Implications for China, the US, and the World