The new NAFTA deal doesn't mean US-China trade relations are about to improve

  • Just hours before a midnight deadline, U.S. and Canadian officials reached a deal to revamp the North American Free Trade Agreement (NAFTA), which also includes Mexico, after more than a year of grueling negotiations.
  • However, one market expert cautioned the new NAFTA deal shouldn't be seen as a sign that there could soon be a breakthrough in troubled trade relations between the U.S. and China.
  • Trump's primary objective during NAFTA negotiations was to bring down U.S. trade deficits — a key goal he has also pursued with Beijing.

A last-gasp deal to salvage the North American Free Trade Agreement (NAFTA) does nothing to improve the prospect of a meaningful breakthrough in the U.S.-China trade war, one market expert told CNBC on Monday.

Just hours before a midnight deadline, U.S. and Canadian officials reached a deal to revamp NAFTA, which also includes Mexico, after more than a year of grueling negotiations.

Until recently, Canada appeared to be on the brink of being excluded from a final agreement but negotiations over the weekend eventually culminated in all three countries signing up to the new United States-Mexico-Canada (USMCA) accord.

However, one market expert cautioned the new NAFTA deal shouldn't be seen as a sign that there could soon be a breakthrough in troubled trade relations between the U.S. and China.

"I do believe that unfortunately the China story is a lot more complicated (than NAFTA talks)," Luis Costa, head of CEEMEA FX and rates strategy at Citibank, told CNBC's "Squawk Box Europe" on Monday.

Trade war

President Donald Trump has long sought to revamp NAFTA, and the agreement is seen as a notable victory for his administration.

It comes as Washington continues to fight a trade war on several other fronts, most notably the spiraling trade conflict with Beijing.

"What does the U.S. really want to achieve in the short term, so we can finalize and mute the noise? We don't quite know, so I think that the story will probably be with us for years, not months," Costa said.

A commercial truck exits the highway for the Bridge to Canada, in Detroit, Michigan, August 30, 2018. 
Rebecca Cook | Reuters
A commercial truck exits the highway for the Bridge to Canada, in Detroit, Michigan, August 30, 2018. 

China and the U.S — the world's two largest economies — have been locked in an escalating trade war for months, with both countries levelling increasingly severe rounds of tariffs on each other's imports.

Last month, Trump pledged to impose 10 percent tariffs on $200 billion worth of Chinese imports. Those duties are set to rise to 25 percent at the end of 2018.

China's ministry of commerce then announced retaliatory measures against an additional $60 billion of U.S. imports but said it hoped there could be talks to resolve the matter.

Costa added the Chinese administration had been relatively measured in its approach to the global trade war thus far, preventing the trade conflict from being "blown out of proportion."

'Everyone is worried'

Trump's primary objective during NAFTA negotiations was to bring down U.S. trade deficits — a key goal he has also pursued with Beijing — by imposing hundreds of billions of dollars on imported goods from China.

"Everyone is worried about a trade war between China and the U.S.," Martin Gilbert, co-chief executive of global investment firm Standard Life Aberdeen, told CNBC's Steve Sedgwick on Monday.

"I just can't see it really being in China's interest to take on the might of the U.S. because the U.S. is still doing phenomenally well," he added.