A trade deal, but at what cost?
Officials from the Trump administration and the Chinese government have announced a breakthrough: They’ve achieved agreement on the first phase of a longawaited trade deal. It’s a fine Christmas present for both countries, which have watched tensions rise while their economic growth was affected by a bruising 19month trade spat originally launched by President Trump.
“You could think of it as $80 (billion) to $100 billion in new sales for (U.S.) agriculture over the course of the next two years,” said Robert Lighthizer, Trump’s top trade negotiator for the deal. “Just massive numbers.”
He also said last Friday was “the most momentous day in trade history,” thanks to the U.S.China deal as well as the U.S.MexicoCanada trade agreement, which the White House sent to Congress for final approval votes.
The truth about both deals is far more complicated.
The U.S.China first phase deal, in particular, is much less than meets the eye.
On Sunday, the Trump administration was scheduled to levy additional duties on Chinese goods. This deal scraps those duties, and it reduces the duties on about $120 billion of Chinese goods from 15% to 7.5%.
In exchange, China has agreed to buy an additional $200 billion in U.S. goods and services over the next two years, including $4050 billion in agricultural goods. It’s also pledged to do a better job protecting U.S. intellectual property — an issue that’s been a thorn in the side of multiple U.S. presidents.
But the success of the deal will be up to Chinese officials, and several Chinese officialsreportedly have been less enthusiastic about the deal in private than they are in public.
Their caution is wellearned. While Lighthizer and Trump are crowing about an expected $40 billion to $50 billion in annual agricultural sales, few analysts believe those numbers are realistic. The highest level of farm products the U.S. has ever exported to China was $26 billion in 2012.
Plus, this first phase deal doesn’t do anything about the 25% tariffs already in place on the bulk of goods that China exports to the U.S. Considering this fact, how aggressive will China really be about pursuing increased agricultural purchases and intellectual property protections?
The truth of the matter is that China can afford to drag its feet on a “phase two” deal, but the U.S. can’t.
Most economic studies have found that the burden of Trump’s tariffs is falling more on American consumers and businesses than it is on Chinese ones. Experts believe U.S. economic growth would have been stronger without them.
It’s also hard to quantify the impact that the uncertainties of this trade war have leveled against U.S. businesses, but that impact is significant as well. As tariffs stacked up over the past 19 months, U.S. companies have had to disrupt their supply chains and reduce their business investments. These trends will continue as long as the tariffs do.
Meanwhile, the White House scrambled to salvage a lastminute dispute over the U.S.MexicoCanada trade agreement on Monday after Mexico balked at a provision that would have permitted the U.S. to send its own inspectors to enforce labor standards at Mexican factories.
Mexico believed the provision represented an unacceptable breach of its sovereignty. On Monday, Lighthizer promised that the new labor attachés would not be labor inspectors and would not inspect Mexico’s factories. The deal is reportedly back on track, but the episode should remind the Trump administration that the U.S. isn’t the only nation with its own trade concerns — or its own means to torpedo a deal.