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Trump rips up the trade playbook to take on China

President Donald Trump wants a deal with China — just not anytime soon.

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Donna Borak
(CNN) — President Donald Trump wants a deal with China — just not anytime soon.

After announcing a revamped trade agreement with Canada and Mexico last week, Trump reeled off a list of other countries that he said had given in to US demands to hold talks or make a deal: South Korea, Japan, the European Union.

He scoffed at those "babies out there" who worried about the effects of tariffs, suggesting that "we wouldn't be talking about a deal" with Canada and Mexico without his confrontational approach.

"That's going to embolden him to impose more tariffs and threaten more in the hopes of getting a better deal out of China," said Edward Alden, a senior fellow at the Council on Foreign Relations.

Trump's no-holds-barred strategy on China is likely take center stage this week at a summit of global finance chiefs and central bankers in Bali, Indonesia. And it'll be up to Treasury Secretary Steven Mnuchin, the president's top economic envoy, to argue the US case as warnings intensify about the damage a protracted trade war could do to global economic growth.

"The stakes are high," Christine Lagarde, the managing director of the International Monetary Fund, said last week. "We need to work together to de-escalate and resolve the current trade disputes."

'Coalition of the willing'

If the Trump administration can get the European Union and Japan on side following the recent trade deals with South Korea, Canada and Mexico, that's likely to strengthen the US negotiating position with Beijing, top administration officials argue.

"We are talking to the European Union again, we are talking to Japan again, and we are moving to what I have characterized as a trade coalition of the willing to confront China," Larry Kudlow, Trump's chief economic adviser, said last week.

But talks with Europe and Japan are still in the early stages. And French President Emmanuel Macron said last month that Europe shouldn't sign trade deals with any country that doesn't comply with the Paris Agreement on climate change, a clear reference to the United States.

The Trump administration's approach to building a coalition against Beijing is a break from the old playbook of working collaboratively with allies to address mutual concerns.

Other big economies like the European Union and Japan share some of the main US grievances with China, including intellectual property theft and pressure on foreign companies to hand over technology to Chinese partners. But Trump slapped tariffs on key allies at the same time as stepping up his campaign against China, which some analysts suggest has weakened any potential united front.

Souring relationship

Trump has made clear he's in no rush to restart talks with Beijing anytime soon. Instead, he has threatened to impose an even bigger wave of tariffs on another $267 billion of Chinese products. That would mean the US measures effectively cover all the goods China sells to the United States each year.

"I'm using them to negotiate," Trump said of the tariffs. "And hopefully, we can make a great deal with China — a fair deal and a reciprocal deal."

Details of the revised pact with Canada and Mexico, which is set to replace NAFTA, show that the US government is also trying other ways to amplify the pressure on China.

Tucked in the new agreement is a requirement that each country inform the others if it wants to start free trade negotiations with a "non-market economy," a clear reference to China. The other countries would also be able to review any potential free trade deal with China.

That move has upset Beijing, further souring the relationship between the two economic superpowers.

In a frank exchange of views in Beijing on Monday, Chinese Foreign Minister Wang Yi told US Secretary of State Mike Pompeo that the United States should immediately stop its "wrong remarks and actions," including the trade war. Pompeo responded that the two countries have a "fundamental disagreement" and that the United States has "great concerns about actions that China has taken."

'How much pain are they willing to endure?'

Neither side is showing signs of backing down.

The United States, whose economy relies less on exports than China's, is faring better so far. China's economy had already started slowing down this year and its stock markets and currency have slumped as the trade conflict has escalated.

"The question is: How much pain are they willing to endure?" said Thomas Bernes, a distinguished fellow for the Centre for International Governance Innovation."They will be looking to the midterm elections to see if there is going to be a rejection of Trumpism or whether they he gains strength and remains in power."

For its part, the Trump administration appears willing to maintain the pressure for as long as it can.

"We have changed the paradigm," US Trade Representative Robert Lighthizer said last month. "We have tariffs in place, and the president is not going to let this go along when you have forced transfer of intellectual property."

Trump is expected to meet with Chinese President Xi Jinping at the Group of 20 leaders summit in Buenos Aires at the end of November.

But with Beijing unwilling to give ground on US demands that it change fundamental parts of its economic policy, the prospects of reaching a deal anytime soon appear slim.

"It is still hard to see how a further escalation of the trade conflict with China will be avoided," Andrew Hunter, US economist at research firm Capital Economics said in a note to clients last week.

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