US-China trade: truce, not peace
Cabinet secretaries and White House officials have predicted that President Trump’s initial trade agreement with China and his revised accord with Mexico and Canada slated for final passage this week will deliver twin jolts to the economy.
But outside forecasters, including some economists who have welcomed the China agreement in particular, have predicted much more modest gains and, in some cases, no gains at all. “We now have U.S.M.C.A.; that’s going to pass the Senate this week,” Treasury Secretary Steven Mnuchin said Wednesday on CNBC, referring to the United States-MexicoCanada Agreement. “We have China Phase 1, there is a deal with Japan, a deal with Korea. These are all going to have significant positive effects on the 2020 economy.”
He and other officials have good reason to hope: Mr. Trump is up for re-election, and the economy appears to have grown by just over 2 percent in 2019, a dip from 2018 and well short of the administration’s forecasts of growth above 3 percent for the year.
The administration has yet to publish an official 2020 growth forecast. Mr. Mnuchin said on Sunday that he expected the economy to grow between 2.5 percent and 3 percent this year, though he cautioned that growth could fall to the lower end of that range because of troubles at the aerospace giant Boeing.
Other forecasts were less optimistic. The World Bank said last week that it expected the
United States economy to grow by 1.8 percent this year. The first phase of the China trade deals and the U.S.M.C.A. are not expected to have much of an impact on the more pessimistic predictions.
“I have not changed my forecast as of yet and don’t expect to materially,” said Rubeela Farooqi, chief United States economist for High Frequency Economics. She expects the nation’s economy to grow by 1.8 percent this year. The China agreement, she said, “is a step in the right direction, but tariffs remain in place, and I’m not sure they will be rolled back imminently.”
The Phase 1 agreement could affect American growth in two ways, and administration officials are counting on both to deliver.
First, the deal calls for China to begin purchasing what the administration says will be $200 billion worth of American crops and other exported goods and services. Those purchases should increase exports from the United States to China, which, all else being equal, would promote growth.
Second, and perhaps more important, administration officials appear to be counting on the agreement to revive business investment in the United States, which has fallen in recent quarters after surging in the first half of 2018. The uncertainty that Mr. Trump and the Chinese sowed as they imposed escalating tariffs on each other’s imports was largely to blame for that sluggishness, many companies and economists have said.
The bullish case for the China agreement is that it will ease that uncertainty. Some economists say the U.S.M.C.A. could do the same. For months, administration officials have touted a study by the United States International Trade Commission that predicted that the North American trade deal could raise growth by 0.35 percent, largely by reducing uncertainty over trade in digital services.
Andrew Hunter, senior United States economist at Capital Economics, backed that assessment on Tuesday. “The gap that opened up last year between investment and corporate profits suggests that tariff uncertainty has caused firms to delay” investment plans, he wrote in a research note. He added, “With the U.S.M.C.A. deal signed and the threat of further tariffs on Chinese goods seemingly off the table, that drag should now be fading.”
Many economists have praised the agreements for reducing uncertainty, but few have raised their growth forecasts because of them. That is in part because they say the deals still leave a large number of tariffs in place — particularly those against China, but also on some steel, aluminum, solar panels and washing machines imported from other countries.
They also noted that Mr. Trump had waged his trade wars on fronts well beyond North America and China. New trade battles loom this year, including one between the United States and France over a French push to impose a new tax that hits American tech giants like Google and Amazon. Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said the Phase 1 agreement was “good news for the U.S. and the world economy.” But, she said, “there remains considerable uncertainly for businesses using China as a platform for products destined for the U.S. market, and we will continue to see the impact of this in slower investment and higher business costs.”