America's trade war with China may be nearing an end, but if anyone can snatch defeat from the jaws of victory, it's President Donald Trump.
Just days before Friday's March 1 deadline to reach a trade deal with China, the president gave us yet another glimpse of the hard-headed thinking that has pushed America into an economically damaging trade war and complicated his administration's efforts to end it.
The scene unfolded in the Oval Office as Trump and U.S. Trade Representative Robert Lighthizer fielded questions from the press during a meeting with Chinese trade officials. In response to one question about the so-called "memoranda of understanding" (MOU) that would be issued by the U.S. and China as part of a trade deal, Trump declared that he did not like signing MOUs because "to me, they don't mean anything. I think you're better off just going into a document."
That's when Lighthizer interrupted the president to issue a pretty stark correction. Actually, Lighthizer pointed out, the MOU is the contract that's signed by the two governments. "A memoranda of understanding is a binding agreement between two people," Lighthizer said. "That's what we are talking about. It's detailed, it covers everything in great detail."
— Bloomberg Economics (@economics) February 23, 2019
Trump, however, refused to back down. "I disgaree. I think that a memoranda of understanding is not a contract to the extent that we want," Trump said, before asking Lighthizer to roll the MOU into "a final, binding contract" that would, somehow, be more significant.
A clearly exasperated Lighthizer tried to defuse the awkward situation by announcing to the press that the two sides would no longer use the term "MOU" to refer to the legal document outlining the prospective trade deal. Instead, "we're going to use the term 'trade agreement,'" he said, waving his arms frantically. "We're never going to use 'MOU' again."
In the midst of the disagreement, the top Chinese negotiator laughed out loud.
In the grand scheme of things, this spat between Trump and Lighthizer seems unlikely to derail whatever deal is being hammered out between trade officials from the world's two largest economies. Still, both the style—Trump's willingness to openly fight with his top trade official in front of the media and China's trade delegation—and the substance of the dispute highlight how Trump has jeopardized negotiations. As The New York Times put it last week, Lighthizer has been growing frustrated with "the president's superficial understanding of the trading relationship with China and his tendency to jump unpredictably into the fray."
With the White House now backing down from a months-long promise to increase tariffs on China on March 1 unless a deal is reached, observers seem increasingly confident that an agreement is near. Trump seems eager to sign a deal. He undercut Lighthizer again by declaring last week that the March 1 tariff deadline would be ignored, and signaled that he would be willing to meet one-on-one with Chinese President Xi Jinping later in March to hash out the deal. It's clear that policy details are not Trump's forte, and it's unlikely that the meeting between Trump and Xi will accomplish a more substantive deal than what could be worked out by the trade officials who at least understand what an MOU is.
That any deal could be reached at all is something of a minor miracle, given the many ways in which Trump has damaged relations between the U.S. and China. He pulled the U.S. out of negotiations over the Trans-Pacific Partnership (TPP) trade deal shortly after taking office because he saw the deal as being too beneficial for China—despite the fact that China was not part of the TPP, which was meant in part as a way to counterbalance China's growing influence in the region.
Since launching the trade war last year, Trump has repeatedly bragged about how tariffs on steel, aluminum, and other imported products are filling the U.S. Treasury with money paid by China. In reality, American importers and consumers are paying the higher taxes created by the tariffs, and the revenue generated by those levies has been canceled out by his administration spending $12 billion to offset losses incurred by American farmers as a result of the trade war—a policy that has had only mixed results.
Trump has repeatedly confused the difference between the federal budget deficit, which is the gap between the federal government's revenue and its spending levels, and the trade deficit, which is the gap between how much America imports and how much it exports. He's argued that revenue from tariffs are reducing the trade deficit, which is impossible since revenue from tariffs flows into the federal government and does not directly influence the trade deficit. Regardless, he's also wrong about either deficit being reduced—since taking office, Trump has presided over sharp increases in both the federal budget deficit and America's trade deficit with China.
And, as he demonstrated last week, Trump has little understanding of how the details of trade deals work—but seemingly endless confidence in his ability to reshape the global economy to his liking. He's the "Tariff Man" who doesn't understand how tariffs work.
The most likely outcome is probably one that satisfies Trump's desire to look like he accomplished something while letting China save face. That's why some observers of the negotiations are now predicting Trump and Xi will reach a "weak" deal that does not address China's abuses of intellectual property or the forced transfer of American technology. That's the outcome Lighthizer and other China hardliners are trying to avoid.
In many ways, that would be an outcome free-traders could root for. It would allow Trump to claim a political victory over China and give him a reason to lift the tariffs that are hurting mostly American businesses. Additionally, it would leave the U.S. in a position to challenge China's unfair trade practices in front of the World Trade Organization—where this whole dispute probably should have been taken in the first place—or to team-up with other major trading partners to resurrect the TTP and use it to apply market-based pressure on China.
The deal will have to be judged on its own merits, of course, but any deal has the benefit of bringing to a close the Trump administration's tragic comedy of unforced errors.