Trump set for ‘antagonistic’ China relations, Citigroup says

Donald Trump’s administration may be on course for a fraught relationship with China amid disputes over trade policy, according to Citigroup Inc., which warned the new U.S. government could introduce more protectionist measures against manufactured goods from Asia’s top economy.

“There are growing signs that the Trump administration is heading for antagonistic relations with China,” the bank said in a report that examined how commodities including metals and farm goods may fare in the upcoming lunar year. While the bank stuck with its view that a trade war could be avoided, it did anticipate “increasing trade frictions” between the two.

Trump made trade relations a central theme of his election campaign, maintaining that the U.S. was getting a raw deal from agreements ranging from Nafta to the putative Trans-Pacific Partnership. The new president hammered on an “America First” message in his inauguration speech, and his administration immediately vowed to withdraw from the Pacific deal.

“We are more likely to see the U.S. aggressively targeting China in sectors where the U.S. runs a large deficit with China or with significant SOE presence,” Citigroup said, using initials for state-owned enterprises. China has options to react, including bringing cases to the World Trade Organization, using countervailing measures and possibly banning exports of strategically important commodities such as rare earths, it said.

Trump has nominated billionaire investor Wilbur Ross for commerce secretary. In testimony on Wednesday in Washington before the Senate Commerce Committee, Ross called China the most protectionist of the world’s major economies and vowed to level the playing field with the Chinese on trade, especially in reducing overcapacity in its steel industry.

Trump has pledged to use “every lawful presidential power to remedy trade disputes” with China, including tariffs. He once broached a tax of 45 percent on Chinese imports, then denied bringing it up. Still, the president has already walked back from some criticisms and so far hasn’t followed up on a pledge to label China a currency manipulator on his first day in office.

There have been mixed signals from China’s media. After the inauguration, the Global Times, a Chinese newspaper run by the Communist Party, said the speech signaled a “high possibility” of trade frictions. Still, the official Xinhua News Agency congratulated Trump on his inauguration and said it hoped for “win-win” cooperation between the two nations, and an editorial run by state-backed newspaper China Daily took a similar tone.

Not everyone foresees a full-blown trade confrontation. Australia’s Finance Minister Mathias Cormann has said he doesn’t expect an all-out trade war between the U.S. and China. Trump’s focus on making the U.S. economy strong is “going to be good for the world,” he told Bloomberg. Bloomberg