by Austin Bay
October 3, 2018
As China's Communist government sees it, the "neo-NAFTA" U.S.-Mexico-Canada Agreement is far more than a revised North American trade arrangement. It is an act of strategic warfare aimed at China.
Beijing has got this one right. The Trump administration's USMCA gives Washington a powerful economic and diplomatic tool for achieving the U.S. and its key allies' most vital long-range goal in the Indo-Pacific region: preventing the rise of a hegemonic regional power, in this case China. Key U.S. allies in the Indo-Pacific is shorthand for Canada, Japan, Australia, South Korea and Singapore. India is a quiet ally, though continued Chinese misbehavior will ensure India morphs from quiet to key.
For four decades, China has been a rising power, and its rise has been epic. However, China's specious claims to the South China Sea and its artificial island invasion of the region have hardened opposition to the Beijing dictatorship's aggressive expansion. Manufacturing phony islands in Filipino maritime territory and then topping the fake islets with runways for combat aircraft moved beyond influence peddling to physical threat. Chinese and Indian soldiers sparring in the Himalayas and Chinese warships almost ramming U.S. Navy vessels (the most recent close call occurred Sept. 30) increase suspicion of Chinese motives and resistance to Chinese actions.
Chinese and American leaders appear to share two general assessments of their escalating "great power" competition, and both are grounded in economics. First, the military and diplomatic dimensions of 21st-century Chinese "national imperialism" rely on Chinese economic might and continued productivity. And second, the "miracle phase" of China's economic revival is over. Per capita GDP went from $333 in 1991 to $7,500 in 2017, but the plateau phase has begun. For the moment, China's grand strategy of national imperial expansion is vulnerable.
Here are some vulnerabilities, all of them affecting China's economy and the Communist dictatorship's ability to project power. Corruption challenges the dictatorship's legitimacy. Managing the complex economy and addressing social and environmental problems test its technical credibility. China can no longer supply itself internally. It must import resources from Asia, Africa and the Americas. Communist legacies like state-owned enterprises employ people and party loyalists but they eat capital. Modernizing China's military to rival the U.S. has bled red ink and matching the Pentagon's might is not assured. Strategypage.com recently observed that corruption and mismanagement "cripple" China's armed forces.
The general assessments and vulnerabilities tell Washington that the time to curb China's appetite for imperialist aggression is now, by cutting off its economic oxygen.
The Trump administration tied NAFTA revisions to domestic political objectives, but Chinese strategists would deem that clever subterfuge worthy of =. Trade war tweet threats with America's largest trading partner, Canada, shook markets, but the initial Mexico-U.S. agreement sent another signal. Some changes Washington wanted Mexico City could give. OK, some components provided by non-USMCA nations could draw tariffs. Beijing read that as a shot at China's exports, which are subject to U.S. tariffs. And it was. Cheaper Chinese car parts couldn't evade U.S. tariffs.
USMCA automotive and dairy sector changes weren't insignificant but they didn't fundamentally alter the North American market. Since the deal maintains Mexican access to the U.S. and Canadian markets, Mexico's long-term international economic position could improve. The space is there for Mexico to competitively manufacture many products China makes. At some point, that cuts Chinese cash for weapons.
Mexico and Canada know China is anything but a friend, and the USMCA demonstrates that. Both nations will support U.S. demands that China respect intellectual property rights and pay royalties instead of committing intellectual property theft.
China's unreliable legal system already makes it risky place to invest. Increasing Chinese production costs increases investment risks.
OK, car prices in the U.S. may rise slightly. But all of these factors impede China's ability to make war and bully its neighbors.