The Trump administration has reportedly reached an agreement in principle on a trade deal with China. That's good news, if only because it signals a cessation in hostilities between the world's two biggest economies.
The White House says it will not go ahead with a tariff increase scheduled for next week while the two sides draft the specifics of the deal. Other trade barriers scheduled to take effect in mid-December have not yet been canceled, and existing tariffs on about $360 billion of Chinese imports remain in place. China has agreed to increase the amount of agricultural goods purchased from the U.S. by about $50 billion.
Speaking from the Oval Office on Friday, Trump described the deal as a "substantial phase one" agreement.
What exactly that means remains to be seen. The deal itself will not be public for at least a few weeks as Washington and Beijing hammer out the details. And keep in mind that the White House trumpeted a similar breakthrough in May only to have the promised bargain collapse before it made it into writing. Already, Chinese media outlets are reporting that the "deal" struck last week might be less solid than Trump made it sound.
According to The Wall Street Journal, the agreement does not include any specific concessions from China on the matter of intellectual property theft or the forced transfer of technology from American firms doing business in China. That's something that will be dealt with in a later "phase" of negotiations, Trump told reporters on Friday.
If that's true, then the face-off failed to accomplish any of the major goals outlined by the president and his top trade advisors during the past 18 months.
There were, in broad strokes, three such goals. First, the tariffs were meant to boost American manufacturing (steelmaking, specifically) and encourage companies to make more things in America. Second, they were supposed to reduce America's trade deficit—the difference between the value of goods a country imports from another country and the value of goods it exports to that same country—with China. Finally, they were supposed to force China to abide by international norms when it comes to respecting private companies' intellectual property, a rationale for the trade war that had support from some business lobbyists and members of Congress who were otherwise skeptical of the tariffs.
It's already abundantly clear that the first two rationales have failed. The trade war has been a spectacular failure for American steelmakers. Higher prices created by tariffs have slackened demand for steel, and declining sales have forced some layoffs while wrecking major steelmakers' stock prices. Since the steel tariffs took effect in March 2018, U.S. Steel's stock has fallen by a whopping 75 percent—from a high of $45 in the days after the tariffs were announced to a value of just $11 per share this morning.
Manufacturing as a whole has struggled too. The trade war has caused a drop in exports and domestic business investment. There is almost no evidence of businesses relocating from China to America (though some are leaving China for places like Vietnam). And while manufacturing job growth has continued throughout 2019, the rate of jobs being added is about 5,000 per month this year, well below the rate of 22,000 per month added in 2018.
The promise that tariffs would reduce America's trade deficit has been an even bigger flop. American exports to China have decreased during the trade war, while imports from China have remained relatively flat. The result: The trade deficit widened by 12 percent during 2018, and it has grown by another 8 percent so far this year.
The third argument was the actual legal basis for the tariffs. Section 301 of the Trade Act of 1974 gives the president the unilateral power to impose tariffs if another nation is engaged in behavior that actively harms U.S. economic interests. The Section 301 report drawn up by the Office of the U.S. Trade Representative centers on China's technology policies, covering everything from cyberattacks to the various means used to obtain U.S. companies' intellectual property.
Even as trade war's negative consequences piled up, the Trump administration could argue that losing those battles was necessary to win the war. And getting China to change its behavior around intellectual property would indeed be a major win for many American companies. But that doesn't seem to be happening.
"A final deal must address the full scope of structural issues identified in" the U.S. Trade Representative's analysis of China's intellectual property theft, said Sen. Chuck Grassley (R–Iowa) in a statement responding to the news of a handshake deal between Trump and Chinese trade officials. "After so much has been sacrificed, Americans will settle for nothing less than a full, enforceable and fair deal with China." Grassley is chairman of the Senate Finance Committee and a key Republican voice on trade issues.
Other reactions were similarly unenthusiastic.
"While we are pleased that tariffs aren't going up, this agreement seemingly does nothing to address the crippling tariffs farmers currently face," said Brian Kuehl, co-executive director of Farmers for Free Trade, a coalition of agriculture special interests, in a statement. "Long-term, sustainable markets are what farmers actually need. From the very beginning of the trade war, farmers have been promised that their patience would be rewarded. To date, the deal they've promised has not come."
A de-escalation of the trade war would be welcome news. And if this signals that Trump is shifting his strategy away from a one-on-one clash and will try to use other means to pressure China to change its behavior, that should be applauded.
But that doesn't mean the president gets to ignore the damage he's done. The trade war has cost Americans more than $35 billion, may have permanently reduced American farmers' export markets in China, and has helped shift American politics away from the post–World War II consensus about the benefits of trade. And for all that, what has it accomplished? China might again buy some of the farm goods that they were already buying before the trade war started?
Without any agreement on intellectual property, the White House isn't just moving the goalposts for the trade war. It's pretending they never existed in the first place.