Pretty much everyone not hopelessly enamored with Trump has seen his tariff war, qua tariffs, as having produced an embarrassing retreat. The Wall Street Journal gave a representative shellacking in The Great Trump Tariff Rollback.
However, Mr. Market’s celebration of Trump’s proclaimed reset with China rests on dodgy foundations. The Trump Administration is still implacably committed to checking China’s advance in any way it can, even if the means to do so seem to be in short supply.
Only one trade “deal” has been completed so far, that with the UK. The rest are pending, with Trump tastelessly crowing how countries were lining up to negotiate so as to avoid the nose-bleed level tariffs he threatened to impose.
BREAKING:
Donald Trump:
"The countries are kissing my ass, begging to make a deal on tariffs" pic.twitter.com/4UXxvS2bOI
— Megatron (@Megatron_ron) April 9, 2025
However, China itself called out a point of vulnerability as Trump was pulling out his tariffs bazooka.1 China anticipated that the US would use these negotiations to extract provisions that would enable the US to isolate or otherwise disadvantage China. From the Financial Times on April 21, Beijing warns countries not to act against China in trade deals with US:
Beijing has warned it will retaliate against countries that negotiate trade deals with the US “at the expense of China’s interests”, fuelling global tensions as the world’s two economic superpowers face off over tariffs…
While the report said the US strategy was intended to pressure Beijing to come to the negotiating table and abandon its defiant stance, China has shown little sign of backing down.
China’s leader Xi Jinping visited Vietnam, Malaysia and Cambodia last week, where he sought to shore up relations with Beijing’s trading partners.
China’s fears look to be playing out. The Financial Times today reports that the new trade agreement with the UK contained restrictions justified as “security requirements” for investments in the steel and pharmaceuticals industries in the UK that look to be directed at China. From China criticises UK trade deal with US:
China has criticised a trade deal between the UK and US that could be used to squeeze Chinese products out of British supply chains, complicating London’s efforts to rebuild relations with Beijing.
The trade deal the US sealed with the UK last week, which includes strict security requirements for Britain’s steel and pharmaceuticals industries, was the Trump administration’s first since it announced sweeping “reciprocal tariffs” last month.
Asked about the deal, Beijing said it was a “basic principle” that agreements between countries should not target other nations.
“Co-operation between states should not be conducted against or to the detriment of the interests of third parties,” China’s foreign ministry told the Financial Times.
And I want a pony. Continuing:
Last week’s trade deal included cuts to punitive US levies on UK car and steel exports, but did not remove a baseline 10 per cent tariff on British goods.
The sector-specific tariff relief for steel and cars was also only granted on condition the UK “works to promptly meet US requirements” on supply chain security and the “ownership of relevant production facilities”.
UK officials have said Trump has made clear that China is the intended target of that condition. The deal specifies tariff relief for British products would depend on so-called Section 232 investigations, which determine whether and how specific imports affect US national security…
Zhang Yansheng, a senior researcher at the China Academy of Macroeconomic Research, said it was clear Washington would force other governments to accept similar provisions in trade negotiations to isolate China.
“For the UK to do this, it’s not fair to China,” he said. “This type of poison pill clause is actually worse than the tariffs.”.
The South China Post reported that the EU read the UK trade deal restrictions on investments similarly to how the Chinese did. From As EU scrutinises US trade deal with Britain, China is the ‘elephant in the room’:
Sources from the EU and its member states said the text showed that Trump wanted to ensure America’s allies would work to cut Beijing out of important supply chains, namely steel and pharmaceuticals. China is not named in the agreement, but it is alluded to throughout.
“The language in this agreement on alignment with the US on forced labour, data security, economic security, and investment bans can only be read as China being the elephant in the room,” said Sam Goodman, senior policy director at the China Strategic Risks Institute, a British think tank.
Britain agreed to “promptly meet US requirements on the security of the supply chains of steel and aluminium products intended for export to the United States and on the nature of ownership of relevant production facilities”, the text read, in what observers saw to be references to Chinese ownership in the industry….
Henry Gao, a professor specialising in international trade at Singapore Management University, suggested that the deal’s China focus would be a running theme as countries around the world scrambled to avoid tariffs.
“As predicted, China is a central concern. The agreement highlights issues like ownership of production facilities, preventing non-participants from using the deal to bypass tariffs, coordinating on non-market policies, and addressing forced labour in supply chains, all directed towards China without naming it,” Gao said.
Let’s back up a bit to explain why this US move is, or at least is intended to be, significant. It sets a precedent, conveniently with a weak trade counterpart. The UK had wanted post Brexit, and still had not gotten, a “free trade” deal with the US. We pointed out that in bliateral trade deals with the US, unless the counterparty has economic heft, the US dictates terms; negotiations are only at the margin.
The US already runs trade surpluses with the UK, so the point of this deal was not to improve trade balances. It was to extract other goodies.
Note that the US allowing the UK to export up to 100,000 cars (just a smidge under what they sell here now) was the gimmie to get concessions. But pharmaceuticals, where the US demanded UK protections, is number two, per official UK data for calendar 2024:
Steel is not listed as a top export. But could the US whinge about the steel content of some finished or intermediate goods?
The Chinese trade surplus with the UK is over four times as large as America’s. That means both China and the US accumulate financial claims on the UK. The export surplus country can simply keep cash balances in the foreign currency, but most want to put it to work in some manner. Hence, for instance, during the 1970s oil embargo years, the Saudis bought so much property in London’s Mayfair that it came to seem like a ghost town.
So China, even more than the US, would presumably want to hold some, perhaps a lot, of equity-type investments in the UK, like buying or staring up manufacturing operations, or acquiring positions in publicly traded companies.
And the reason this precedent is particularly problematic to China is the degree to which Southeast Asia, which runs large trade deficits with China (and hence is a target for Chinese investment) and surpluses with the US, is in the crosshairs (note Southeast Asia is not the only area of concern but the most obvious) and large surpluses with the US, has been signaling that they need to appease the US with respect China in their pending trade deals. From the Bangkok Post on April 11, in Facing Trump tariffs, Vietnam eyes crackdown on some China trade:
In hope of avoiding punishing US tariffs, Vietnam is prepared to crack down on Chinese goods being shipped to the United States via its territory and will tighten controls on sensitive exports to China, according to a person familiar with the matter and a government document seen by Reuters.
The offer, the details of which are reported by Reuters for the first time, came as senior US officials, including influential White House trade advisor Peter Navarro, raised concerns about Chinese goods being sent to America with “Made in Vietnam” labels that draw lower duties.
Vietnam has for weeks been offering sweeteners that it hoped would persuade US President Donald Trump’s administration to take a benign view of its huge trade surplus with America. Instead, it was hit with a 46% tariff as part of Trump’s “Liberation Day” salvo.
Note that the US rejected Vietnam’s speedy offer to cut all its tariffs on US goods to zero and fingered Vietnamese re-export/labeling abuses as the reason. From the Economic Times of India, citing Fox and Newsweek:
[Peter] Navarro, the senior US trade counsellor, turned down the offer in an appearance on Fox News, calling it a “national emergency,” as per the report. Navarro indicated that the US would not negotiate with Vietnam on this issue, saying that the trade deficit with Vietnam had “gotten out of control” and complaining that the nation was “cheating” by relabeling Chinese goods as its own and employing unfair trade practices…
Navarro also highlighted that “If you simply lowered our tariffs and they lowered our tariffs the zero, we’d still run about $120 billion trade deficit with Vietnam.”
The same day that Vietnam said it was going to tighten up on export labeling to the US, so too did Thailand. From a second story in the Bangkok Post, Thailand vows crackdown on false claims of origin in US exports:
Thai authorities will step up a crackdown on the practice of foreign companies circumventing high US tariffs by claiming false certificates of origin as it prepares for negotiations with the Trump administration to secure relief from a 36% tariff hit.
The Southeast Asian nation, which had an almost US$46 billion trade surplus with the United States, plans to add more products to a watchlist of 49 goods as false claims of origin are among the key concerns of US authorities, the Commerce Ministry said in a statement Friday.
The government has identified about nine more groups of products deemed at high risk of circumventing the rule of origin by companies using Thailand as a base for re-exports to the US… The products include steel, copper wire and aluminium among others…
The bid to deter companies from misusing the local content rule will be cheered by Thai companies, who have long been complaining of dumping of cheap Chinese made goods in recent years. President Donald Trump’s move to impose a record 145% tariff on Chinese goods has stoked concerns among local manufacturers of an even greater influx of cheap products.
A survey of chief executives of Thai companies released Wednesday showed that almost 71% of the participants were worried about cheap Chinese goods flooding Thai markets, leading to lower use of production facilities or more factory closures.
When China reported trade data for April that showed a big drop in exports to the US, it claimed an overall increase nevertheless due to large increases in shipments to the EU and Southeast Asia. We said the latter was at best channel stuffing. There was no jump in economic activity in the region to support such an increase on an organic basis.
Now in addition to such crude measures as false labeling, one way to undercut US tariffs on China, if the ones in any Southeast Asian country wind up being lower, would be to locate Chinese factories in that country. One might therefore think that these nations would be unhappy at the idea that the US was trying to restrict Chinese direct investment in them.
The reality is more complicated and less favorable to China. China has made an art form of building and operating so-called “zero dollar” factories so as to produce maximum benefit to China and the minimum to the host country. From the Bangkok Post in Thai economy put at risk by surge in zero-dollar exports:
The government is being urged to address zero-dollar exports and investments from China, as they are expected to intensify due to the US tariff measures…
The US tariffs will also affect the movement of production bases, with Southeast Asia and Thailand likely to be key destinations for foreign direct investment (FDI) worldwide, he [Amonthep Chawla, chief economist at CIMB Thai Bank (CIMBT) Economic Centre] said…
“Despite the positive outlook for FDI flows to Thailand, the country faces challenges related to zero-dollar investments and exports, particularly from Chinese investors,” he said.
“This issue has been ongoing in Thailand and is expected to worsen given the heightened geopolitical risks.”
Zero-dollar exports refers to trade activities that result in little or no economic benefit for the exporting country.
Mr Amonthep said while Thailand posted record FDI inflows last year, the country’s Purchasing Managers’ Index (PMI) showed only marginal growth and did not contribute significantly to employment.
Thai export growth was in double digits, but again did not provide significant benefits to the economy due to minimal growth in net exports, he said.
An example, which is a very sore point, are so-called zero-dollar tours. Low-end tours from China that constitute the bulk of arrivals are perceived to be of no value to Thailand. The busses they travel on are owned and operated by Chinese companies. The tour guides are Chinese (when by law they should be Thais with licenses). The visitors stay at Chinese owned-and-operated hotels. They go to Chinese owned-and-operated restaurants. They are taken to Chinese owned-and-operated retail stores.
An economist, an outspoken critic of globalization and financialization and who regularly praises China, did not dispute the Thai view. His comment:
That’s why Chinese businessmen were so widely abhorred throughout Asia. And Chinese officials even bragged to me about how cutthroat they were in their business dealings.
It’s far too early to see how this struggle over investments and influence will play out. But also keep in mind that Trump has undermined himself with what looks like his tariff baselines of 10% generally and (per Scott Besssant) 30% for China. And the break for Shein and Temu, which have become important to low-income shoppers, are tariffs on small packages of a mere 54%. Even those lower levels will generate domestic inflation and harm, perhaps fatally, many small businesses.
In addition, Trump’s madman negotiating strategy is producing the reverse of what he’d like to see, which is plunging approval. From Joshua Schwarz at Responsible Statecraft:
Despite some advantages, however, the madman strategy is far from a panacea and entails significant drawbacks that will likely limit what Trump is able to achieve. One major issue (for which I provided evidence in a peer-reviewed study that conducted surveys of the American public) is that a leader who is perceived as mad is likely to face increasing levels of disapproval among their own domestic public. This can then undermine their bargaining leverage with foreign leaders.
The madman strategy is generally unpopular domestically because the public values competence in leaders, and thus is unlikely to look kindly on a leader it perceives of as actually or potentially crazy.
So even if Trump actually does win on some level with China, he is set to lose where it matters, here at home.
____
1 For newbies, this is not a flattering metaphor. It refers to Hank Paulson’s quickly-revealed-to-be ineffective Fannie/Freddie bazooka.
Yves is describing U.S. use of Britain today in a similar way to what occurred in 1944 in negotiating the creation of the IMF and World Bank. After twisting Britain’s arm to adopt the US rules, the United States used its capitulation as a battering ram to get the rest of Europe to join in. (I describe the details in Super Imperialism.)
Britain is indeed playing a similar role today in acquiescing in “national security” clauses that obviously are aimed at China. Trump himself said that his threat to create trade chaos as a threat to obtain “give-backs.” And the giveback that he wants is for countries to join the US attempt to isolate China.
So the question is, what will other countries choose: to make a short-run deal to recover some of the U.S. market, which looks like it will be shrinking for the next few years? Or to look to China and its allied countries where growth is much more dynamic?
The problem is that the interest of other “countries” is not necessarily that of their governments, over which U.S. officials have much more sway.
Note the hypocrisy of Trump today in Saudi Arabia claiming that the era of unipolar U.S. dominance is over. His “tariff policy” is an attempt to force other countries to accept the U.S. unipolar plan, or accept the Trump-sponsored chaos.
And the deal with the UK is the opening salvo.
Did you miss that China runs large trade surpluses with Southeast Asia? And they are growing? China is importing jobs from its generally poor neighbors. And you depict participating in growth, as in worsening of the same, as a plus?
https://www.scmp.com/week-asia/economics/article/3306974/can-southeast-asia-shield-industries-surge-chinas-exports-post-trump-tariffs
Yves, I’m trying to understand what Michael Hudson said that you were responding to. Is it this part?
Not that you don’t make good points, I’m just not sure of the connection to what Michael Hudson appear to be saying about growing versus shrinking markets to sell into.
The point is Hudson pre-supposes that Southeast Asia will participate in that growth. Instead, recent trends show that China is engaging in extractive practices with respect to Southeast Asia to help achieve that growth. So why is that in any way a plus for Southeast Asia?
FDI may be the key. The crudities of the US approach does open the possibility of China reversing its existing practices, developing reciprocal trade agreements, and using the surplus it has with any country as a basis for positive investment in that country’s economy, increasing local employment and financing the develop of infrastructure (particularly rail and electric vehicles), create new industries and develop and grow old industries which are free to export to any country with which the UK has or seeks economic relations and thereby increase the rates of employment and economic growth within the UK as an alternative to Trump’s Freddy Freeloader option.
It would also be an excellent basis for bi-lateral and multi-lateral deals with EU member states which China can assist in developing sensible trading relationships with Russia, particularly in he energy sector so that relations normalise positively and without undue loss of face (and preferably with the long overdue loss of Commission crazies lie Useless, Callous and those of that ilk).
Did you not read the post? FDI is what the US wants to restrict. And FDI in Southeast Asia, per the zero dollar factories, is NOT producing an increase in net exports. Southeast Asia has a worsening balance of trade with China and is not getting much if any jobs out of it either.
The part you are missing is that the Anglosphere economic model is predatory with respect to its own citizens and other countries. Mercantlism, which is what China practices, is predatory only with respect to other countries. As I indicated, now that I have lived in Southeast Asia, I have come to realize that the view of most left-leaning Americans about China is naive.
I must admit I hadn’t heard of the term ‘zero dollar factory’ before, but I’ve often heard a complaint made about that type of development – its certainly a phenomenon that seems to go hand in hand with the Belt and Road. Much of the new Chinese funded infrastructure is built almost entirely with imported Chinese labour (even the security). Anecdotally, many of the new industrial zones associated with various port schemes are using lots of imported staff with locals treated very differently. This seems to be a key reason for the targeting of Chinese nationals by Baloch militants in Pakistan.
Some of this is undoubtedly cultural – Chinese companies simply trust Chinese workers much more – but its also inherent to the domestic Chinese development model. China is not by any means the only offender in this – to different degrees, all the export oriented economies do similar things with their aid and government aid projects. But it is increasingly bearing comparison with classic colonialist style models of development (for example, resource extractive railways built to favour the outside dominant countries, with the debts often left for the locals).
Even a very brief scanning of media across SE Asia shows that this is a hot topic – and has been for years. The view of China (and other large countries) looks very different when you are in one of those neighbouring countries than it does from the US or Europe.
Are you saying that living in SE Asia has shown you that China pursues mercantilist policies and this is in some aspects to its SE Asia neighbours’ detriment?
I can believe that but those neighbours themselves aspire to do the same thing! Their problem is that China does it better….
Somebody has to be lunch in the mercantilist world. :-)
I suggest you do some homework.
Thailand is not mercantilist or even all that commercially oriented (despite a lot of low-level entrepreneurship in the form of food vendors and street stalls). For instance, college students consistent answer surveys on employment preferences that they’d rather have a job that was fun than one with good prospects.
It ran balance of trade deficits consistently until the Asia Shock of 1997 and the IMF’s tender ministrations. Then like the rest of the IMF victims, it set its currency pegs lower so as to run surpluses so as to amass a good sized FX reserve so as never to have to go to the IMF again. Moreover, the recent rise in Thailand’s surplus (per the reference above) is largely attributable to China zero dollar exports, again not a function of Thai policy.
And I am disagreeing with the US. And I am certainly not missing that the Anglosphere (although I would say Western) economic model is predatory, but its reliance on extraction and IPR rents and overpriced education designed bring ignorance to the masses are its soft underbelly, which both China and Russia have demonstrated they can hack into pretty effectively. Night is falling rapidly on the Western élites’ time in the sun, as revealed by sanctions which are destroying the dollar as a reserve currency (first slowly and then it will be a rock falling from the sky) and Trump’s latest tariff shenanigans.
More context is needed here, too —
[1] In steel’s case, the UK government had just had an all-night session where they de facto nationalized the last remaining steelmaking plant, British Steel, after reported physical confrontations between British workers there and Chinese managers trying to shut down its furnaces — and effectively terminate the plant’s viability — on the basis that the Chinese owners were running the furnaces at a loss of losses of £700,000 a day.
The UK took on British Steel, despite the losses, expressly to keep some independent steel-making capability in the UK and out of the hands of the Chinese, who were seen — fairly or not — to not have the UK’s best interests at heart when they attempted to shut it down.
https://theconversation.com/what-caused-the-crisis-at-british-steel-254557
Keeping China away from such British-produced steel as remains, then, was already intended UK national strategy before the agreement with Trump.
[2] In 2023, the UK earned £470 billion from services exports, or $628 billion. In the 12 months preceding February 2025, total UK exports of both goods and services was £1,790.5 billion, making the UK the world’s fourth largest exporter.
https://www.statista.com/statistics/1312780/trade-in-services-exports-uk-by-service/
https://www.gov.uk/government/statistics/uk-trade-in-numbers/uk-trade-in-numbers-web-version
Of that, the UK’s services exports to the US were £126.3 billion, or $167.78 billion, making it the UK’s largest export partner for services, and putting UK’s services trade surplus with the US at £68.9 billion, or $91.53 billion
https://assets.publishing.service.gov.uk/media/681343167e56aaab3b5253e5/united-states-trade-and-investment-factsheet-2025-05-02.pdf
In this context, an agreement with the US on UK good exports that distracts Trump’s attention from a UK services exports surplus was a Good Thing.
[3] Conversely, how much are the Chinese actually likely to do in response because they don’t like that agreement. The biggest Chinese embassy in Europe will be here — they’re getting the old Royal Mint building — as are a bunch of Chinese corporation like forex. BYD, who have dealerships all over the country in a way they’re not allowed to in the EU, and also the biggest offshore renminbi trading center outside China.
Will Beijing jeopardize those investments and relationships? Maybe, but the chances are not bad that they won’t much.
[4] Finally, to Michael Hudson’s point that the US will try to use UK agreement with US rules as a battering ram to get the EU. Of course. But this may be seen by some in London to be a feature not a bug because, after all, Britain has had the same foreign policy for at least the last 500 years.
https://www.youtube.com/watch?v=DIiVqiK-Ewg
China’s “cutthroat” trade practices in SE Asia to be expected? The largest economy will use it’s bargaining power to further its interests vis a vis the smaller countries. It looks like the smaller countries are getting hammered in the middle of the two great powers involved.
This may be unavoidable, as great power politics appears to be shifting more rapidly, with the DT2 regime expediting the relative decline of US power.
It is increasingly difficult for me to remain objective when observing the DT and his kakistocrat crew: the inconsistency, contradictions, irrationality, ignorance, corruption, conflicts of interest, and outright buffoonery are almost unbelievable. The emperor appears to be progressively losing his cognitive facilities and his public rhetoric is bordering on insanity, but I am definitely no psychologist. Is he just acting, or is his behavior genuine? The Court Sycophants, of course, pretend that he is in control and rational.
The mass media cover for him, and we are not supposed to notice. The behavior of this “administration” does not inspire confidence, to say the least. The “madman” strategy may be just that. No strategy, just the short-term, ham-fisted tactics of a egomaniac narcissist. Who knows, but it seems to be getting worse with time.
Unfortunately, the SE Asian countries, as much of the world, and the domestic US population will suffer the consequences.