Trump’s deal is less than meets the eye
After more than two years of escalating tariffs, countless threats and strained negotiations that rattled world markets, President Trump signed an initial trade deal with China on Wednesday.
Trump, who campaigned on a promise of forcing China to improve what he described as an unfair trade relationship, described the deal as a fulfillment of that promise.
“Today we take a momentous step, one that has never been taken before with China toward a future of fair and reciprocal trade with China,” Trump said at a White House ceremony.
He described the agreement as “righting the wrongs of the past.”
That’s extremely elevated language for an initial deal that doesn’t offer a major change in direction from Trump’s preferred policy of bullying trade partners through tariffs.
The agreement preserves the bulk of tariffs that Trump placed on $360 billion worth of Chinese goods, along with the promise of future punishments if China doesn’t live up to its commitments to increase its purchases from U.S. industries. Trump wants China to buy an additional $200 million of U.S. goods and services by 2021.
China’s retaliation for the Trump tariffs — it will continue taxing about 57% of U.S. imports onto its shores — will also remain in effect.
That’s the terrible news for anyone who cares about the benefits of free trade or the potentially serious drawbacks of a managed economy.
Trump often rails against “socialism,” but a key tenet of how that ideology has worked in practice is exactly what Trump has done here — topdown management of the types of goods and services, as well as their amounts, that can and should be traded.
As for the tariffs, they have backfired badly on the U.S. According to a recent paper from the National Bureau of Economic Research, Trump’s tariffs on Chinese products were completely passed on to U.S. consumers and businesses in every industry except for steel. Economists say the best thing about Wednesday’s deal is that it spares U.S. consumers from the impacts of even more tariffs.
The major benefit of this deal is that it lifts the shroud of market uncertainty that’s been hanging over financial markets for months.
The deal will be good for Trump politically, too. He got some concessions on intellectual property protections, and China’s promises to buy more from the U.S. will be a good talking point on the 2020 stump.
But whether China can live up to its promises remains an open question, and the persistence of tariffs means that U.S. consumers and businesses will have to continue absorbing higher prices. They’ll be the ones to decide if a temporary break in unnecessary trade hostilities has been worth the cost.