Using trade deals with Canada, Mexico and South Korea as leverage, Washington looks set to sharpen its hard line trade policy against China and what it deems unfair trade practices from Beijing, strategists told CNBC.
Though some experts have said a tariff-impacted slowdown in Chinese economic activity may make Beijing more willing to agree to a deal, many still maintain China won't back down and will respond to further U.S. escalation by raising regulatory obstacles to U.S. businesses operating in the mainland.
The United States and Canada reached a last-minute deal on Sunday to replace the North American Free Trade Agreement with the newly named United States-Mexico-Canada Agreement, preserving a $1.2 trillion trade zone that was on the brink of collapse after nearly a quarter century. That followed an earlier deal between U.S. President Donald Trump and South Korean President Moon and the beginning of bilateral trade talks between Washington and Tokyo.
With progress on all those fronts, U.S. Trade Representative Robert Lighthizer can now "turn his total attention to China," said Deborah Elms, Executive Director at the Asian Trade Centre. "He wants to tackle China. The rest is a distraction on the way to the real show. Now he is in a much better position to focus on China all day and night long. Given the importance of Lighthizer to U.S. trade policy, this is a worrying trend for China."
That was a sentiment shared by AdMacro strategist Patrick Perrett-Green, who said Washington now "can focus all its ire on China."
"The battle lines continue to harden," he added.
The Trump administration's characteristically hard line approach to trade talks may be paying off, Elms added, but it isn't guaranteed to work when applied to China — and may even make matters worse.
"The Trump doctrine of bullying your friends and neighbors is working — Korea, Canada, Mexico, Japan and the EU have all given in to a greater or lesser extent," Elms said. "But I think China is entirely different. Partly because what Trump and his team want from China is much less clear. Partly because China cares less about what Trump might do."
Unlike what it wanted for the new NAFTA, Washington's demands on China "still seem more opaque — mixed between market access, end to forced technology transfer, reduction in Chinese exports to U.S. and cuts to overcapacity," said Rachel Ziemba, an emerging market analyst and adjunct fellow at think tank the Center for New American Security. "It's harder to negotiate when it's less clear what a good deal would look like."
That sentiment was echoed by Richard Jerram, chief economist at Bank of Singapore, who told CNBC that "China is fundamentally different" than the "economic bargain" that motivated the NAFTA update.
"NAFTA just needed a moderate update. China seems to reflect a more basic superpower tension. Not just tariffs, but also denial of access to Western technology," he said. "They are probably too late, but it seems to reflect a growing recognition that the dream of China becoming more prosperous and also more democratic / better member of the international community was naïve. They cannot stop its rise, but maybe they can slow it down."
Tony Nash, CEO and Founder of Complete Intelligence, disagreed, arguing that Lighthizer's success in engineering trade deals with Mexico, Canada and South Korea "bodes well for the U.S.-China discussion."
Nash added: "China is having a fair amount of difficulty in their domestic economy ... so I continue to believe China will come to the table with some significant concessions (although they may be downplayed) this month."
Finalizing a trilateral trade deal between the U.S., Canada and Mexico may also help repair alliances damaged earlier this year by Washington's justification of tariffs on national security grounds, experts said. Rebuilding a U.S.-led coalition of trading partners may serve to contain China.
"Assuming it (the USMCA) passes, it allows for focus to shift back to countering China and building a coalition to do so among developed economies, something that was massively deterred by the bitter negotiations with Canada," said Ziemba.
Going forward, the U.S. approach will be "bluster, hard lines and debate, and eventual agreement when the costs of no deal become too high," she said.
Ziemba predicted that there may eventually be a deal with Beijing, but it won't "be easy or long-lasting" given the extent of complaints and the lack of overwhelming business and congressional support for a deal with China. "I think this argues against some grand bargain and suggests that there may be smaller deliverables," she said.