The U.S.-China Trade Deal Was Not Even a Modest Win



Zachary Karabell | POLITCO

So there we have it. The long-awaited shiny new trade deal with China, inked at a ceremony at the White House on Wednesday in the interstitial space before the Senate impeachment trial dominates the news cycles. If you detect a note of skepticism already creeping in, it’s because this pseudo-deal deserves not just skepticism but calling out as a dramatic failure of U.S. policy that will have lasting and deleterious effects. The deal simply restores the U.S.-China relationship to where it was pre-President Donald Trump, declares victory in areas that don’t matter as much as they did and has cost the U.S. billions in the meantime.

That it was heralded by the White House and Trump as “momentous” and “remarkable” and “righting the wrongs of the past” is not surprising. That so many in the commentariat gave this Phase 1 deal (so named because it is in theory the first of several phases) the benefit of the doubt is somewhat more so. The A1 article in the Wall Street Journal was measured but said that the deal “contains wins for the U.S.” The New Yorker dubbed the deal “an uneasy truce.” On CNBC, the garrulous Jim Cramer heralded it as a win for Trump and America, saying “tariffs worked.” In general, while few outside the White House saw the agreement as transformative, the reception to it has been amicably positive, if only because it appears to arrest the destructive slide to more and more confrontation, higher tariffs and greater disruption and uncertainty.

Halting the onward march toward an all-out economic Cold War with China is a good thing. But given that the march began with impulse and barely any strategy on the part of the Trump administration and given as well that an even better pseudo-deal, with more agricultural purchases, could have been struck this spring without more escalation of tariffs, the agreement inked this week should be seen as an almost complete failure.

Here’s why. When Trump became president, he immediately latched onto the trade deficit in goods, which showed the United States importing hundreds of billions more goods than it exported to China. Many also assailed China for years of intellectual property theft and forced technology transfers and for restricting market access to U.S. financial companies. Those issues were at the heart of the decision to begin using tariffs to coerce China into changing its behavior.

At best, the Phase I agreement modestly revises the status quo before Trump came into office. The Chinese government has pledged to increase its imports of American goods, including agricultural products, perhaps by as much as $200 billion over the next two years. It has also agreed to more market access and to a streamlined process for American companies to bring actions for intellectual property theft that should be swifter than the multi-year World Trade Organization process now in effect.

Nothing that China has agreed to, however, departs markedly from what it agreed to during the Obama administration. In 2015, President Barack Obama and Premier Xi Jinping announced an end to cyber-intellectual property theft and embarked on a next round of negotiations over market access. By 2016, many experts believed that China was indeed upholding its commitments, more or less, and the two countries were meeting regularly to hash out issues.

That was not at all sufficient for many China hawks, both Republican and Democrat. Trump, with his conviction that trade deficits were a sign of weakness and of the United States being ripped off, helped those voices, which were in danger of being marginalized as the two countries continued to negotiate and increase the amount of reciprocal trade, rise to the fore.

After two years of tariffs and mounting hostility, however, the agreement struck has cost the United States more than $30 billion to subsidize American farmers to compensate for Beijing’s retaliatory refusal to buy American agricultural goods. It has cost American consumers tens of billions in tariffs. It has forced U.S. companies to diversify their supply chains out of China at an additional cost of many billions. Many of those companies were beginning to consider China alternatives before 2017—China is no longer the lowest-cost producer—but having to shift those supply chains under duress added vast unnecessary expenses.


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