February 28, 2017

Sourabh Gupta

In the 2016 presidential election, Donald Trump prevailed by staying loyal to a core set of protectionist that tapped into the accumulated resentment of important sections of the electorate at a time of economic dislocation. China was a key target of his anti-trade views and three of seven points of his centerpiece economic plan to rebuild the American economy and “Make America Great Again” are mercantilist or protectionist initiatives that relate to China. In the short-to-medium term ahead, US-China economic ties from trade flows to foreign exchange markets to inward investment approvals will experience a period of significant turbulence.

Unilateral punitive measures against Beijing are not likely to be imposed at an early date. But to the extent that they are imposed following a one-sided consultation process that lacks a genuine spirit of give-and-take on the part of the Trump Administration, the potential for significant bilateral trade friction and even an outbreak of trade warfare should not be ruled out.

Beyond US-China ties, President Trump’s remarkable elevation to the White House and strong views on trade policy also has the potential to rewrite the long-held, mainstream consensus on trade policy in Washington. Trump has long viewed himself as a champion of the American worker and now aims to bend the Republican Party – hitherto a relative bastion of free trade thinking, to his line of reasoning. Should he succeed and rank-and-file segments of the party defect entirely from its pro-trade moorings, the decades-old American consensus on trade could be challenged by protectionist urges.

Past periods of economic upheaval have provided a fertile breeding ground for Congress and the White House to come together and augment the statute books with hard-hitting trade enforcement tools. The risk, going forward, is that such tools are authorized and thereafter employed liberally in a manner that are often-times inconsistent with the US’ international trade commitments. In that case, not just US-China economic ties but the larger rules-bound multilateral trading system, too, will be all the worse off.

Download the Report: Trump Trade and US-China Economic Relations