November 29, 2017 / 5:15 AM / a year ago

Breakingviews - Trump gives Xi first taste of trade acrimony ahead

A laborer works at a steel plant of Shandong Iron & Steel Group in Jinan, Shandong province, China July 7, 2017. Picture taken July 7, 2017. REUTERS/Stringer

HONG KONG (Reuters Breakingviews) - U.S. President Donald Trump is back from his China visit, but the afterglow of his bromance with counterpart Xi Jinping has faded fast. Unimpressed with progress on North Korea and market opening, the White House has moved aggressively to target aluminium dumping. This is just an opening salvo in what looks set to be an acrimonious renegotiation of the world’s most important trade relationship.

The Commerce Department on Tuesday launched a probe into aluminium alloy sheet. The sums involved - $604 million of Chinese imports in 2016 – are economically negligible. What is important is that this was initiated by the government itself, not American companies. This approach circumvents the reluctance of U.S. executives, however dissatisfied with Chinese behaviour, to complain in public for fear of retaliation.

The template will surely be applied to other imports that will sting China harder. And it is just one part of a broader push. Lawmakers want to give the Committee on Foreign Investment in the United States broader scope to block deals. This will almost certainly target Chinese buyers. CFIUS is already showing signs of getting tougher: Alibaba continues to wait for clearance to acquire MoneyGram, and other deals have died on the vine. Policymakers are discussing other measures, too, such as tougher rules on Chinese state media.

The key player is the ascendant Trade Representative, Robert Lighthizer, who views American trade strategy with China as an unmitigated defeat. The bilateral trade deficit, the biggest sore spot of this administration, touched a record monthly high in September, according to Datastream.

Xi also failed to deliver change in North Korea, which Trump explicitly linked to his attitude toward China trade. Pyongyang tested yet another long-range missile on Wednesday - right after a visit from senior Chinese diplomats.

In fact, Xi has moved rapidly to displace American influence and capital, at home and in Asia, Africa and Europe. There is no significant “pro-engagement” faction left in the United States. Even U.S. firms heavily invested in China have started calling for action, although it opens them to retaliation. The Sino-U.S. trade war, brewing for many years, looks set to start boiling in earnest.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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