Carlos Gutierrez on the Future of Trade with China, NAFTA and Brexit

Carlos Gutierrez (left)

The trading relationship between the US and China is going to get worse before it gets better, said former Commerce Secretary Carlos Gutierrez, on the eve of high level meetings between US and Chinese officials in Beijing. But, speaking to a LAWAC Roundtable for board and International Circle members, Gutierrez said that he was optimistic about an agreement being reached between the US, Mexico and Canada on NAFTA. He also cautioned against companies making decisions to pull out of the UK in advance of Brexit, saying that it was too soon to predict what UK-EU relations would be after the official Brexit pull out date. Gutierrez was Commerce Secretary from 2005-09, and is currently co-chair of the Albright Stonebridge Group that advises businesses on international strategy.

Gutierrez said that Asia was clearly “the next big battleground where things will happen in the trade world.” He said the decision by President Trump to withdraw from the 12-member Trans Pacific Partnership, or TPP, was “a very big decision that will have massive consequences.” Even though the other 11 TPP members, under Japan’s leadership, have kept the TPP going and have even indicated that the US could rejoin in the future, Gutierrez thought it unlikely under a Trump presidency. “I can’t see him going back on one of his big decisions.” The results will be that China will end up setting more of the trade rules in Asia than the US, and they may be “lower quality rules.” Gutierrez said the US risked missing the boat in Asia: “66% of all robots are in China, Japan and Korea – and we are debating steel tariffs?”

He also said that the confrontation between the US and China over trade is set to get worse and could lead to an all-out trade war. “President Trump wants to go down in history as the man who took on China,” said Gutierrez. But at the same time, Chinese leader Xi Jinping, who has just arranged to extend his leadership without limit, now needs to show why he deserves to stay in power for life – “he cannot afford to be seen to be weak on the US.” For these reasons, Gutierrez said, a clash looks imminent. “The question there is, how does it end?” The most likely scenario would be an agreement between the US and China which could leave the world with two separate systems – the Chinese system and the US system, undermining the WTO. “How does the US and China coexist? That is the big question.”

On NAFTA, Gutierrez says his views have changed. “We are feeling pretty good about NAFTA now, better than four months ago. We think he wants to get NAFTA done quickly so he can turn to focus on China.” Those companies who canceled plans to build factories in Mexico might have been better advised to have waited before making such big decisions, he said. And the same principle applies with the UK and Brexit, where he said the outcome is still far from clear. “There are many who see Brexit as a bad thing, and the UK may still get a soft deal which will ensure a strong trading relationship with the EU.” Although polling suggests the general public has not changed much in its views, the political world has changed, with mounting opposition to Brexit in both the ruling Conservative and the opposition Labor parties. Some are even suggesting that Brexit might not happen at all. “Our advice to clients,” said Gutierrez, “is not to make any big [investment] decisions yet. We don’t know what Brexit will look like, and we don’t even know if it will go through yet.”