Trump's 'economic cold war' with China could wreck any chance of a UK-US trade deal after Brexit

Getty Images / Thomas Peter-Pool

US President Donald Trump and Chinese premier Xi Jinping

• Trump's economic war with China could wreck the prospect of a UK-US trade deal after Brexit.
• That's according to Gary Hufbauer, senior fellow at the Peterson Institute for International Politics.
• "We are entering into an economic cold war with China. We're just seeing the beginnings," he said.
• Brexiteers promised the UK will sign speedy, generous trade deals with allies like the US after Brexit, but early indications suggest the UK will be used as a test-case for hardline negotiations.

LONDON - Donald Trump's escalating economic war with China could wreck the prospect of a UK-US trade deal after Brexit, a Washington trade expert has warned.

Speaking to Business Insider, Gary Hufbauer, a senior fellow at the Peterson Institute for International Politics, said President Trump could demand the UK join its efforts to isolate China as part of a post-Brexit trading relationship.

This would be a big risk for any UK government, given that China is one of Britain's biggest trading partners.

"We are entering into an economic cold war with China," said Hufbauer told BI. "We're just seeing the beginnings. I think it could get pretty serious."

Hufbauer suggested Trump's administration could make alignment with the US - and economic opposition to China - a prerequisite of future bilateral deals such as the one Prime Minister Theresa May intends to negotiate after Brexit, in order to create a "Western alliance" of countries which boost the US economy and damage China's.

"My view is that lining up with the United States with respect to China ... will be one of the conditions [of a trade deal] in terms of technology transfers and trade relations. That's something I don't think was contemplated when May visited Trump last year," Hufbauer told BI.

"I think this 'cold war' scenario is [intended] to strengthen the Western alliance against China.

If the UK did agree to align with Washington against China, Hufbauer said, "the possibility of a US-UK deal … becomes much brighter, but given China's huge economic presence on the world scene I'm not sure how many countries are going to go along with this new geopolitical alignment."

China is the UK's fifth-largest trading partner, and while it would appear highly unlikely that the UK government would agree to any bilateral deal with the US which would include sanctions against China, the situation goes to the heart of a problem Britain is likely to face as she attempts to forge new trade deals outside the EU.

Brexiteers have promised that traditional allies like the US and Australia will line up to sign speedy trade deals with the UK, early indications suggest that Britain is being used as a test-case for hardline negotiations.

Experts told BI in March, for example, that Trump is pursuing a "predatory" policy towards Brexit and the UK, while Australia demanded last week that the UK allow the import of hormone-treated beef in exchange for a trade deal, something the government is unlikely to agree to.

REUTERS/Matt Dunham/Pool

U.S. President Donald Trump (R) speaks to Britain's Prime Minister Theresa May during in a working dinner meeting at the NATO headquarters during a NATO summit of heads of state and government in Brussels, Belgium, May 25, 2017.

"Trump will expect allies to line up on that agenda"

A trade war between the two biggest global economies has been brewing for almost a year as Trump bids to reduce America's outsized trade deficit with China. Each new round of tariffs on Chinese imports announced by Trump has seen China respond with tit-for-tat. The latest salvo came last week, when Trump threatened to place tariffs on a further $100 billion worth of Chinese goods, and China's finance ministry said it would respond with equal measures.

Hufbauer said that the coming trade war would likely entail not only the US attempting to reduce the bilateral trade deficit with China substantially - which will be very difficult - but also an attempt at "technology denial." This was a tactic used by the US during the Cold War, in which it coerced a "western alliance" of countries, including Britain, into denying technology to China, to ensure it did not close its technology gap with the United States.

President Trump could ask Britain to sign up to similar tactics in a post-Brexit trade arrangement.

"What I'm seeing is a revival of that alliance in some way, shape, or form. Given the way the Trump administration is going, it will expect its allies to line up on that agenda. Many of them will not be inclined to do so."

Last week, trade expert Sam Lowe wrote an op-ed for BI, in which he argued Britain will soon find out it is more "European" than it realised when it comes to global trade, amid reports of potential trade deals with the US and Australia.