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.<\/a><\/p>\n However, Mr. Market\u2019s celebration of Trump\u2019s proclaimed reset with China rests on dodgy foundations. The Trump Administration is still implacably committed to checking China\u2019s advance in any way it can, even if the means to do so seem to be in short supply. <\/p>\n Only one trade \u201cdeal\u201d 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.<\/p>\n BREAKING:<\/p>\n Donald Trump:<\/p>\n “The countries are kissing my ass, begging to make a deal on tariffs” pic.twitter.com\/4UXxvS2bOI<\/a><\/p>\n \u2014 Megatron (@Megatron_ron) April 9, 2025<\/a><\/p>\n<\/blockquote>\n However, China itself called out a point of vulnerability as Trump was pulling out his tariffs bazooka.1<\/sup> 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<\/a>:<\/p>\n Beijing has warned it will retaliate against countries that negotiate trade deals with the US \u201cat the expense of China\u2019s interests\u201d, fuelling global tensions as the world\u2019s two economic superpowers face off over tariffs\u2026<\/p>\n 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.<\/p>\n China\u2019s leader Xi Jinping visited Vietnam, Malaysia and Cambodia last week, where he sought to shore up relations with Beijing\u2019s trading partners.<\/p>\n<\/blockquote>\n China\u2019s fears look to be playing out. The Financial Times today reports that the new trade agreement with the UK contained restrictions justified as \u201csecurity requirements\u201d 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<\/a>:<\/p>\n 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\u2019s efforts to rebuild relations with Beijing.<\/p>\n The trade deal the US sealed with the UK last week, which includes strict security requirements for Britain\u2019s steel and pharmaceuticals industries, was the Trump administration\u2019s first since it announced sweeping \u201creciprocal tariffs\u201d last month.<\/p>\n Asked about the deal, Beijing said it was a \u201cbasic principle\u201d that agreements between countries should not target other nations.<\/p>\n \u201cCo-operation between states should not be conducted against or to the detriment of the interests of third parties,\u201d China\u2019s foreign ministry told the Financial Times.<\/p>\n<\/blockquote>\n And I want a pony. Continuing: <\/p>\n Last week\u2019s 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.<\/p>\n The sector-specific tariff relief for steel and cars was also only granted on condition the UK \u201cworks to promptly meet US requirements\u201d on supply chain security and the \u201cownership of relevant production facilities\u201d.<\/p>\n 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\u2026<\/p>\n 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.<\/p>\n \u201cFor the UK to do this, it\u2019s not fair to China,\u201d he said. \u201cThis type of poison pill clause is actually worse than the tariffs.\u201d.<\/p>\n<\/blockquote>\n 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 \u2018elephant in the room\u2019:<\/a><\/p>\n Sources from the EU and its member states said the text showed that Trump wanted to ensure America\u2019s 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.<\/p>\n \u201cThe 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,\u201d said Sam Goodman, senior policy director at the China Strategic Risks Institute, a British think tank.<\/p>\n Britain agreed to \u201cpromptly 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\u201d, the text read, in what observers saw to be references to Chinese ownership in the industry\u2026.<\/p>\n Henry Gao, a professor specialising in international trade at Singapore Management University, suggested that the deal\u2019s China focus would be a running theme as countries around the world scrambled to avoid tariffs.<\/p>\n \u201cAs 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,\u201d Gao said.<\/p>\n<\/blockquote>\n Let\u2019s 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 \u201cfree trade\u201d 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. <\/p>\n 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. <\/p>\n 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<\/a>:<\/p>\n Steel is not listed as a top export. But could the US whinge about the steel content of some finished or intermediate goods? <\/p>\n The Chinese trade surplus with the UK is over four times as large as America\u2019s. 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\u2019s Mayfair that it came to seem like a ghost town. <\/p>\n 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. <\/p>\n 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<\/a>:<\/p>\n 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.<\/p>\n 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 \u201cMade in Vietnam\u201d labels that draw lower duties.<\/p>\n Vietnam has for weeks been offering sweeteners that it hoped would persuade US President Donald Trump\u2019s 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\u2019s \u201cLiberation Day\u201d salvo.<\/p>\n<\/blockquote>\n Note that the US rejected Vietnam\u2019s 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,<\/a> citing Fox and Newsweek:<\/p>\n [Peter] Navarro, the senior US trade counsellor, turned down the offer in an appearance on Fox News, calling it a \u201cnational emergency,\u201d 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 \u201cgotten out of control\u201d and complaining that the nation was \u201ccheating\u201d by relabeling Chinese goods as its own and employing unfair trade practices\u2026<\/p>\n Navarro also highlighted that \u201cIf you simply lowered our tariffs and they lowered our tariffs the zero, we\u2019d still run about $120 billion trade deficit with Vietnam.\u201d<\/p>\n<\/blockquote>\n 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<\/a>: <\/p>\n 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.<\/p>\n 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.<\/p>\n 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\u2026 The products include steel, copper wire and aluminium among others\u2026<\/p>\n 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\u2019s move to impose a record 145% tariff on Chinese goods has stoked concerns among local manufacturers of an even greater influx of cheap products. <\/p>\n 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.<\/p>\n<\/blockquote>\n 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. <\/p>\n 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. <\/p>\n The reality is more complicated and less favorable to China. China has made an art form of building and operating so-called \u201czero dollar\u201d 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<\/a>:<\/p>\n 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\u2026<\/p>\n 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\u2026<\/p>\n \u201cDespite the positive outlook for FDI flows to Thailand, the country faces challenges related to zero-dollar investments and exports, particularly from Chinese investors,\u201d he said.<\/p>\n \u201cThis issue has been ongoing in Thailand and is expected to worsen given the heightened geopolitical risks.\u201d<\/p>\n Zero-dollar exports refers to trade activities that result in little or no economic benefit for the exporting country.<\/p>\n Mr Amonthep said while Thailand posted record FDI inflows last year, the country\u2019s Purchasing Managers\u2019 Index (PMI) showed only marginal growth and did not contribute significantly to employment.<\/p>\n 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.<\/p>\n<\/blockquote>\n 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.<\/p>\n An economist, an outspoken critic of globalization and financialization and who regularly praises China, did not dispute the Thai view. His comment: <\/p>\n That\u2019s 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.<\/p>\n<\/blockquote>\n It\u2019s 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%<\/a>. Even those lower levels will generate domestic inflation and harm, perhaps fatally, many small businesses. <\/p>\n In addition, Trump\u2019s madman negotiating strategy is producing the reverse of what he\u2019d like to see, which is plunging approval. From Joshua Schwarz at Responsible Statecraft<\/a>:<\/p>\n 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.<\/p>\n 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. <\/p>\n<\/blockquote>\n So even if Trump actually does win on some level with China, he is set to lose where it matters, here at home. <\/p>\n ____<\/p>\n 1<\/sup> For newbies, this is not a flattering metaphor. It refers to Hank Paulson\u2019s quickly-revealed-to-be ineffective Fannie\/Freddie bazooka.<\/p>\n\n
\n
\n
\n
\n
![\"\"](\"https:\/\/www.nakedcapitalism.com\/wp-content\/uploads\/2025\/05\/Screenshot-2025-05-14-at-8.16.09\u202fPM.png\")
<\/p>\n\n
\n
\n
\n
\n
\n
![\"Print](\"https:\/\/cdn.printfriendly.com\/buttons\/print-button-gray.png\")
<\/a><\/div>\n<\/div>\n