July 10, 2020

Mexican President Andrés Manuel López Obrador seized the moment to cozy up to the United States and President Trump in his first international trip as President. The July 8 White House meeting between Trump and AMLO, as he is popularly known in Mexico, was a celebration of the new United States Mexico Canada Agreement (USMCA), which went into effect on July 1. Canadian Prime Minister Justin Trudeau declined to attend the event, leaving AMLO and Trump to tout the achievements of the new North American trade deal in American and Mexican terms. The USMCA is a modernized version of NAFTA, providing changes to previous trade provisions (particularly for the auto and agriculture sectors), new guidelines for digital trade, and increased labor protections for Mexican workers. Trump believes the USMCA is a better deal than NAFTA and will bring more jobs to the United States. According to the U.S. International Trade Commission, it will result in a net increase of 28,000 full-time American jobs, with employment in the auto industry rising. However, the USMCA benefits may be farther out than originally expected due to the coronavirus pandemic and economic slowdown in the United States, Mexico, and Canada.

The U.S. has imposed new sanctions on four Chinese officials connected with human rights abuses against the Uighur minority in Xinjiang in western China. The sanctions cut off the designated individuals’ access to the U.S. financial system and prohibit Americans from doing business with them. A travel ban was already in place preventing them and their families from securing visas to travel to the U.S. The Treasury Department has also sanctioned Xinjiang’s police department. None of these prohibitions is likely to have much practical impact. However, one of the individuals subject to sanctions is Xinjiang Province’s party secretary, who is a member of China’s Politburo – the 25 highest-ranking members of the country’s Communist Party – making this a very significant political move. This latest action is one in a string of recent U.S. initiatives intended to put pressure on Beijing, including efforts to constrain Chinese tech giant Huawei’s ability to operate in the U.S. market and sending more aircraft carriers to the South China Sea. Additional sanctions targeting officials involved in enacting and implementing the new National Security Law in Hong Kong (see below) are a possible next step. U.S.-China relations are growing more heated, and with anti-China sentiment running high in the U.S. and presidential elections drawing near, that trend is likely to continue. That said, neither side is likely to pursue actions that risk escalating into direct conflict. With their economies working to recover from Covid-19-related shutdowns, both countries have a strong interest in keeping the trade deal intact.

Australia has suspended its extradition treaty with Hong Kong and urged residents to consider leaving, the latest in a series of actions designed to assist Hong Kong residents seeking to flee the island following passage of Beijing’s new National Security Law. The law imposes broad restrictions on what China deems to be terrorist, subversive, or separatist behavior – encompassing what many Western governments would consider protected speech – and allows for suspects charged with these crimes to be tried on the mainland, which does not provide the same democratic freedoms or commitment to due process that have differentiated Hong Kong’s system from the mainland’s. Both Australia and the U.K., which handed Hong Kong over to the mainland in 1997 under an agreement that was supposed to have enabled the island to maintain its autonomy until 2047, have created new avenues for Hong Kong residents – particularly those involved in the island’s massive pro-democracy movement – to evade prosecution by Chinese authorities. Beijing has thus far been impervious to Western government pressure to uphold Hong Kong’s rights under the long-observed “One Country, Two Systems” principle, leaving them little recourse other than to offer safe haven for the island’s residents. Australia’s measures in this regard include not only extensions of temporary visas and a path to permanent residency, but also incentives for Hong Kong businesses to relocate to Australia. While these measures are unlikely to have an immediate impact on Hong Kong’s status as a global financial center, over time, gradual attrition of international talent and companies (especially tech) may see it transition into a hub primarily for money flows into and out of China.