Since the beginning of 2018, the global tariff war initiated by the United States has continually stirred the global market. This is especially true in the growing trade friction between the United States and China, which has cast a shadow over the global economic recovery. On the surface, the United States has initiated the trade war to reduce its huge trade deficit. However, based on the development of trade friction, the essence behind it is to break the past global economic and trade patterns and institutional arrangements, and to restructure the global trade pattern that would be on the side of the U.S.; this is, of course, the embodiment of the "America First" strategy in the trade field.
On October 16, a few weeks after re-signing the North American Free Trade Agreement (NAFTA), the U.S. Trade Representative Office told the Congress that it intends to conduct trade negotiations with the European Union, the United Kingdom, and Japan. According to Reuters, the U.S. Trade Representative Robert Lighthizer said in a letter to the Congress that the government's goal is to "address both tariff and non-tariff barriers and to achieve fairer, more balanced trade" with the EU and Japan. He also said that they "are committed to concluding these negotiations with timely and substantive results for American workers, farmers, ranchers, and businesses." Lighthizer also stated that the U.S. plans to begin formal negotiations with the UK as soon as possible after Britain exits from the EU on March 29, 2019. According to the analysis of the Financial Times, this means that compares with the EU and Japan, trade negotiations with the UK are a priority in the United States' considerations.
Trump would think that the U.S.-China trade friction is not a trade war, but a minor conflict. From another perspective, based on the global trade pattern, the tariff war is indeed a prelude of something bigger. The larger impact would be the change in the global trade pattern, that is the pattern of the beginning of the breakdown of multilateral agreements, and the era of bilateral agreements has begun. The Chinese edition of the Financial Times has published Anbound's chief researcher Mr. Chan Kung's view that the world is moving from the era of multilateral agreements to the era of bilateral agreements. From the perspective of world trade and financial history, this would be a cycle. If there are major turning points like the changes in the world politics, technological progress, main pattern of world currency, ideology and civic awareness, climate, environment, and resources, the world would likely usher in a new era. In the case that these changes do not occur, the current era of trade conflict will be long-term. In the process, the global trade map will be reorganized and the alliance relationship will be redefined; this is exactly what the United States is doing now.
After reconfiguring the North American trade pattern, the United States would be free to negotiate with the EU, the UK, and Japan. If these three reach the agreement with the United States, together with North America, they will account for a large proportion of global trade. According to the World Trade Organization's statistics, the total global trade in goods in 2017 was US$ 35.75398 trillion. Among them, the total trade volume of goods in mainland China exceeded US$ 4.1 trillion, accounting for 11.48%, ranking first in the world. The United States ranked second in the world with US$ 3.9562 trillion, accounting for 11.07%; the total trade volume of EU countries (excluding the UK) in 2017 exceeded US$ 11.34 trillion, accounting for 31.73%; Japan's total trade in goods exceeded US$ 1.37 trillion, accounting for 3.83%; the total volume of the UK's goods trade was close to US$ 1.09 trillion, accounting for 3.05%; the total trade volume of Canadian goods exceeded US$ 860 billion, accounting for about 2.41%; the total trade volume of Mexican goods exceeded US$ 840 billion, accounting for about 2.35 %. From these data, it can be seen that the world of goods trade in North America, the European Union, Japan, and the United Kingdom accounts for more than 50%. The above statistics do not include trade in services. If trade in services is taken into account, the trade volume and proportion of these developed countries will increase significantly.
It is worth noting that the United States has also planted the "China clause" in the United States-Mexico-Canada Agreement (USMCA). The clause states that "entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement)." The Western media widely regard this as targeting China and preventing Mexico and Canada from reaching a free trade agreement with China. The U.S. government officials said that the clause is a "poison pill" and that the agreement will become a template for future free trade negotiations of the U.S. with different parties. One can see that if the above-mentioned bilateral trade agreements are reached, it will most likely form a trade circle dominated by bilateral trade agreements that exclude China.
While the United States is building its alliance in global trade, China should also strive to do the same. In the context of the deterioration of the global trade environment, China has become the main target of the U.S. However, China is also taking the time to establish a circle of economic and trade friends. Up to now, China has reached 17 free trade agreements with 25 countries and regions, with free trade partners in Europe, Asia, Oceania, South America, and Africa. In 2017, the trade investment between China and its free trade partners accounted for 25%, 51% and 67% of China's foreign trade in goods, services and two-way investment. In addition, China is conducting 12 FTA negotiations or escalating negotiations with 27 countries. In response to changes in the global economic and trade pattern, China's strategy is to build more bilateral agreements.
Anbound has proposed the construction of "1+3" paradigm where China, Japan, Germany form an economic and trade "union" ("3") that supports globalization and advocates multilateralism to counter the isolationism represented by the United States ("1"). Currently, Premier Li Keqiang is visiting Europe and working extremely hard to promote China-EU cooperation. China's process of building an alliance in trade and economics is a difficult task; it is important to remember that the trade war is not just a matter of short-term tariffs and trade volume, but a mean for the global trade pattern to be reconstructed. China should be an active participant in this, and it would be best to become a rule-maker in this reconstruction
Final Analysis Conclusion:
The U.S.-China trade friction is not just an accidental trade dispute, but a prelude to the transformation of the global trade pattern. The global economic and trade pattern dominated by multilateral agreements has begun to be fragmented and evolve, and the era of bilateral agreements based on national interests has started. In the global trade pattern change, China needs to be an active participant and builder.
