U.S. President Donald Trump did not waste any time keeping his promise to kill the Trans-Pacific Trade Partnership (TPP), an agreement that would have strengthened U.S. economic ties to 11 Pacific Rim nations. However, the common assumption that his decision amounted to handing China an unqualified victory, with the United States’ pulling back from global trade leadership and leaving China to take the helm, is an oversimplification.

TPP’s demise has doubtless provided China an opportunity to build greater influence in Asia. And Beijing has been quick to seize this opportunity. In his speech to the Davos World Economic Forum this month, Chinese President Xi Jinping presented his country as a reliable supporter, perhaps even the leader, of open markets and globalization. By contrast, Trump’s election has brought with it a good deal of global anxiety about Washington’s future commitment to a liberal economic order.

After Xi’s remarks, observers were quick to point out that China’s support for open markets has much more to do with economic self-interest. However, Beijing’s defense of free trade goes much deeper than that. China now has the opportunity to reassure partner countries that it can be counted on to promote regional stability. 

But any celebrations in Beijing may be premature. By turning away from TPP and by threatening a new tariff regime—most recently by floating the idea of a 45 percent surcharge on all imports—Trump laid the groundwork for greater market instability. Formal agreements on trade don’t just promote market liberalization. They also represent a broader commitment to play by certain rules—in other words, to behave predictably. Trade deals constrain governments from making the kinds of surprise policy changes that Trump appears to favor. Their benefit is twofold: greater reliability in trade policies and, in turn, less volatility in trade flows.

Trump dislikes TPP precisely because, in his mind, agreements like it (and NAFTA) tie America’s hands. These agreements, he believes, lock the United States into policies that have not served its economic interests, at least not those of American workers. This mindset accounts for Trump’s evident preference for bilateral deal making. But Beijing has much to lose from trade instability; export-driven growth has been essential to its extraordinary economic transformation since the start of Deng Xiaoping’s reforms in 1978.

True, China was never included in TPP and would therefore not have been immune from new U.S. protectionism. But the pact’s dissolution sends a worrying signal about Trump’s intention to return to an economic Wild West—one in which the White House values American autonomy above all else, a point he made more than once in his inauguration speech.

And that has Chinese firms worried. At Davos, Xi spoke about the dangers of descending into a beggar-thy-neighbor trade war. Even if his comments were intended to warn Trump, and even if China were to come out on top in a bilateral trade war, it would still pay a heavy price given the importance of the American market. In 2016, China’s exports to the United States totaled $423.4 billion (about 20 percent of the country’s total exports), and imports from the United States amounted to $104.1 billion.

If Trump does double down on protectionism, China will need to make adjustments to shore up markets closer to home—and do so quickly. But that’s easier said than done. A common argument is that the TPP’s death clears the way for a China-centered Asia-Pacific trading system in the form of the Regional Comprehensive Economic Partnership (RCEP). Nevertheless, that venture can’t possibly offset the losses that China would suffer from new U.S. trade barriers. And any benefits would certainly come years too late. The United States is a developed consumer market and is already China’s top trade partner. By contrast, many of China’s would-be regional partners are still emerging, and Europe’s economy remains sluggish. Therefore, the stakes for China are high. To protect its interests, Beijing could very well respond with retaliatory policies of its own, making it harder for U.S. firms to do business.

All this comes at a bad time for China. Its current annual economic growth rate, 6.6 percent, remains among the most rapid in the world. But it has fallen, and pretty steadily, from 8.4 percent in 2000. (The IMF forecasts that the rate will continue falling through 2021, when it will reach 5.8 percent.) According to one estimate, a 10 percent reduction in export earnings would cut overall economic growth by a further 2.5 percent per year.

High growth rates matter to Beijing because they help raise living standards, but they also matter from a strategic standpoint. They provide the capital for the big projects that China has in mind at home and abroad—for example, infrastructure and raw material investments in the developing world and within China itself. They enable defense budgets commensurate with China’s strategic ambitions. Moreover, they reduce the likelihood of massive internal strife, something the Chinese leadership has become increasingly concerned about in recent years as strikes and demonstrations sparked by economic grievances and unrest in non-Han regions, notably Xinjiang, and Tibet have grown.

Ultimately, a protectionist Trump (or even a U.S.-Chinese trade war) won’t spell the end of China’s economic or political ascendance. However, it could make a significant difference in the trajectory of both. That’s why it’s an oversimplification to declare the end of TTP a clear victory for China. It also raises questions about China’s economic and political role in the region. And the Chinese leadership is savvy enough to know as much. To China’s leaders, Trump’s ditching of the TPP reveals something significant about the new president. And they shouldn’t like what they see.

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