Free Trade

Trump's Trade Deal With China Is Better Than a Trade War With China. But a $200 Billion Question Remains.

Unless the tariffs are lifted, the "Phase One" trade deal might not accomplish much beyond empowering China's communist regime to tighten its grip on free markets.

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President Donald Trump inked his so-called "Phase One" trade deal with China earlier this week, putting in place a framework that the White House says will boost economic growth and protect American intellectual property.

As the "Phase One" name would indicate, this isn't really an end to the trade war—in fact, nearly all the tariffs imposed by both the United States and China since hostilities commenced in July 2018 will remain in effect. Still, after 18 months of escalation and retaliation, the signing of a partial trade deal is a welcome sign that cooler heads have prevailed in Washington and Beijing.

And, indeed, the Trump administration does deserve credit for getting stronger protections for intellectual property into the deal, though it remains unclear whether those provisions can be meaningfully enforced. China has also agreed to make a series of changes to its financial services regulations that should allow competition from U.S. banks. That's potentially more important than it might appear because it reduces the odds that the world's two largest economies will fully de-couple from one another in the future.

Outside the specifics of the deal, the past year and a half may have altered the U.S.-China relationship in productive ways. "American credibility has been greatly enhanced" by the trade war, writes Tyler Cowen, an economist at George Mason University, in a column for Bloomberg. By standing up to China and demonstrating a willingness to endure the economic pain caused by the tariffs, Cowen argues, Trump has changed the calculus for how China can expect the U.S. to respond as it continues to grow. Only time will tell if that's right.

And, of course, the deal is a political win for Trump as he heads into a re-election campaign

But the biggest part of the trade deal—a promise that China will boost its purchases of U.S. exports by $200 million over the next two years—should be viewed with skepticism. That part of the deal might also make pro-market reforms in China more difficult, and it reveals (once again) something about Trump's own, skewed views of international trade.

Using 2017, the last year before the trade war began, as a baseline, China has agreed to buy $77 billion in additional U.S. goods (agricultural, manufacturing, and energy exports all count towards that total) this year, and another $123 billion extra in 2021.

In 2017, total U.S. exports to China equaled about $186 billion. That means Trump is asking China to increase its purchases of U.S. goods by around 60 percent—a great leap forward that The Wall Street Journal describes as "an unprecedented jump in bilateral trade."

Even if China manages to stuff that much American corn and soy down the gullets of its people and livestock, it might be worth asking if $200 billion in exports is worth the cost.

Forcing China to buy more U.S. goods "directly contradicts the negotiating demand that China liberalize its economy and relax centralized control over trade and investment," writes Dan Griswold, a senior research fellow at the Mercatus Center, a free market think tank. "With its demand that the Chinese government fulfill what are in effect quotas on purchases of U.S. goods and services, the Trump administration is only reinforcing the sway of the hardliners in Beijing at the expense of more pro-market reformers. All for a promise of more exports that may or may not ultimately materialize."

In many ways, this speaks to Trump's fundamental misunderstanding about how trade works. The president sees countries as if they were corporations: employing people to produce goods, while buying and selling with other countries. This is why he's been so fixated on the trade deficit. If you think of America as a single company, then buying more than you sell means you are losing money.

But, of course, America is not a single company, American companies are not subsidiaries of the White House's fictional national corporation, and American workers are not the president's employees.

While national government aggregate data about trade for a variety of reasons, the reality is that trade happens in an incredible diffuse way. It is the result of millions of individual decisions made by consumers and businesses every day. When "America" trades with "China," what's really happening is that some individual within America is trading with some individual inside China.

Or at least that's how it should be. It's true, of course, that China's communist government retains considerable control over markets inside the country. But requiring China to buy more American goods isn't the way to encourage more liberalization.

"This is essentially the administration saying, 'We've given up on saying we want you to become more market-oriented,'" Chad Bown, a senior fellow at the Peterson Institute for International Economics, tells The Wall Street Journal.

It's also not clear whether China buying $200 billion of additional U.S. exports will actually add to overall American economic growth. It's possible that China could simply buy up exports that would have otherwise gone to other countries. That outcome might reduce America's trade deficit with China, but it wouldn't boost U.S. exports overall or help grow American farms or manufacturing—yet another reason why Trump's fixation on the trade deficit is counterproductive.

And as long as Trump's tariffs remain in place—there are no plans to lift them right now—they will continue to harm American manufacturing and be a drag on exports. Because tariffs raise the cost of manufacturing in the United States by taxing imported component parts, they have the added effect of making finished products more expensive, and thus less competitive on the global market. The Institute of International Finance estimates that the trade war has cost the U.S. about $40 billion in "lost exports."

China agreeing to buy more farm goods and energy from the United States won't fix those underlying issues. Unless the tariffs are lifted, Trump's "Phase One" trade deal could end up helping China's socialist regime tighten its grip on free markets while providing little to no relief for Americans.

NEXT: Precedent Matters at the Supreme Court—Until It Doesn’t

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  1. “Unless the tariffs are lifted, Trump’s ‘Phase One’ trade deal could end up helping China’s socialist regime tighten its grip on free markets while providing little to no relief for Americans.”

    You know which American has suffered most because of Drumpf’s disastrous economic policies? Reason.com’s benefactor Charles Koch, that’s who. Poor guy’s net worth has been stuck in the $58,000,000,000 to $62,000,000,000 range throughout the #DrumpfRecession.

    This. Is. Not. Normal.

    1. “empowering China’s communist regime to tighten its grip on free markets.”

      China is a slave state. It’s obscene to talk about Emperor Xi’s slave state as having free markets.

      Reason prefers that obscenity so they can keep whitewashing the offshore slavery they advocate enriching.

  2. Discuss this article on Quora:

    https://www.quora.com/q/sgrmlrcbxkjitfee/Trumps-Trade-Deal-With-China-Is-Better-Than-a-Trade-War-With-China-But-a-200-Billion-Question-Remains

    Quora is a vibrant community where everyone must use their real names and a “be nice, be respectful” policy is strictly enforced.

    1. everyone must use their real names

      And nobody says what they really think.

      1. And the liberal mob down votes any contea opinion until they settle on pure group think.

        Just flag the spam.

        1. I see Neutral Mike is back. Or is it Non-Partisan Mike? You know, I get confused with all of his different names…

    2. Don’t forget to report cytotoxic the Canadian piece of subhuman shit for bulk-spamming his shitty fake Quora page.

      How does it feel to be reduced to a spambot in addition to a belly-crawling boot-licking Marxist piece of subhuman shit, cytotoxic?

    3. Did a bot steal his name or did he just lose his mind?

      1. We broke him.
        Really didn’t take that long either

        1. I was going to scale back my visits to unreason but sending Lefty supported trolls screaming to their supervising coders for more Lefty donations makes it all worth it.

          Ron bailey weighed in on comments the other day and was eviscerated for his non scientific support of this article. We are breaking the unreason staff,

          1. Ron Bailey, wrong as he is, has the balls to try to defend his Faith in comments. That much I respect.
            The rest of the staff is certainly cracking.
            Here’s hoping one of them offs him or her self in the coming months

  3. “stronger protections for intellectual property” are not laudatory.

  4. Trade has generally always been a positive factor for economies around the world. However, I disagree with Henry Kissinger’s 1971 position that increasing trade with China was a very positive development. While China’s leadership has changed, the Communist government’s goals remain the same: global economic and military supremacy. The U.S., by allowing China to become a major supplier to the U.S., has enabled China to achieve exceptional economic growth which, in turn, has allowed China to significantly expand and upgrade its military capabilities. Underlying most of this has been a low-cost transfer of costly technology from the U.S. to China. Consequently, the “inexpensive” products sourced from China are proving to be extremely expensive in the long run. China’s image may have changed; China’s goals have remained the same.

    1. Enriching the most powerful slave state in the world to make Koch a few more bucks.

      What could possibly go wrong?

    2. Trade is not the end all for peace.

      Commies in China bought a lot of amphib ships with trade wealth. They didnt build those ships to rust in Chinese harbors.

  5. “As the “Phase One” name would indicate, this isn’t really an end to the trade war—in fact, nearly all the tariffs imposed by both the United States and China since hostilities commenced in July 2018 will remain in effect.”

    To be perfectly accurate, Trump cancelled plans to hit another $160 billion that were set to go into effect on December 15th, and would have gone into effect if China hadn’t come to terms, and Trump agreed to cut the 15% tariff he hit them with in September of 2019 in half, which impacted $120 billion worth of Chinese exports to the U.S.

    https://www.usatoday.com/story/news/politics/2020/01/15/trump-sign-china-trade-deal-details-remain-mystery/4434592002/

    I’ll be glad when the rest of the tariffs are gone. Trump seems to be holding them over China’s head to make sure they comply with the purchases they agreed to make as well as to ensure that they implement the agreed upon policies regarding intellectual property.

    I remain opposed to Trump’s trade war, but I see no reason to say anything that people might misconstrue as criticism for ending the trade war.

    There’s little question in my mind but that Trump is mostly doing this with an eye towards winning reelection in 2020. Those farm purchases by the Chinese are likely to do more for him in farm states than anything else could. On the one hand, I’d like to criticize Trump for squeezing trade partners for short term purchases to goose his reelection chances, but, on the other hand, I have a hard time criticizing a president for catering to the interests of American voters–not when the elitists in the other party are preaching contempt for average Americans as if that were a virtue.

    I will say this: If Phase Two won’t happen until after the next election, then the pro-trade vote should probably go to President Trump come November of 2020. If Trump doesn’t get rid of what’s left of the tariffs on Chinese exports to the U.S., there is no reason to think that Biden, Sanders, or Warren will. Trump’s criticism of trade with China is because he believes our trade relationship is lopsided in China’s favor. Sanders and Warren, especially, are hostile to trade with China because they’re hostile to market capitalism itself. They wouldn’t negotiate a deal with China unless the China agreed to terms in Hong Kong, Tibet, and Xinjiang, NS agreed to worker protections along the lines of those enjoyed by the UAW, which is another way of saying “never”.

    1. To be perfectly accurate Ken.

    2. “I have a hard time criticizing a president for catering to the interests of American voters”

      Representative government that represents the interests of those governed. What a concept.
      Government of Americans, by Americans, and for Americans.

      #AmericanFirst

      1. +10000

        China caved. The EU is fighting off the inevitable cave too. This epstein thing getting ready to expose a bunch of high ranking EU politicians and elites is more important than them thinking straight about good trade with the USA…for now.

  6. Even though we’re in Phase 1, I refuse to give up my underpants.

  7. Such winning…
    “One important implication of the phase one deal is that US tariffs on imports from China are the new normal. Even after the deal goes into effect, Trump’s tariffs will still cover nearly two thirds of all US imports from China. He will also have increased the average US tariff on imports from China to 19.3 percent, as compared to 3.0 percent before the trade war started….The December announcements imply that China’s applied tariffs will also remain at elevated levels. Retaliation stemming from Trump’s tariffs means that China will have increased its average tariffs on US exports to 20.9 percent, as compared to 8.0 percent before the trade war…”

    https://www.piie.com/blogs/trade-and-investment-policy-watch/phase-one-china-deal-steep-tariffs-are-new-normal?fbclid=IwAR1p3lhkfjZK4MUV7KU0H-0T1NZ1LQNtvm6GX_8TCBpnDUyCqbpIE73qwqM

    1. Trump, colluding with Arch Commie rat bastard, Adam Smith, who favored tariffs to offset local taxes on production:
      Wealth of Nations, pg. 356
      https://ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf

      “It will generally be advantageous to lay some burden upon foreign industry for the encouragement of domestic industry, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the borne market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.”

      So much #winning!

  8. It’s not exactly what I jokingly said Boehm’s title of this article would be but close enough to give me a chuckle.

  9. Hahah poor Boehm. The US Senate ratified the USCMA.

    I will expect a full compare and contrast of USCMA vs NAFTA on my desk by 0800 Friday, since youre my bitch. Or you can send in the alphabet troll. That troll like your hack ass wont do it.

    Some of us called that 2020 would give you a super sad. Trump winning in trade. Trump not being impeached. Trump winning reelection. Luckily I have almost all my Lefty tear barrels ready to collect.

    1. This has been done before. Yet you continue to beat this to death like the USMCA is some stellar thing.

      We get some access for our agricultural sector. We export one of our worst economic policies, a $16 minimum wage, to Mexico for the automotive industry (I’m sure the UAW loves that one). We also throw in some more protectionism by mandating a higher percentage of content for automobile manufacturing from NA countries.

      USMCA adds more government management of trade and regulations for the automotive industry in particular. Of course it gets bipartisan support.

      The ag sector will love governments guaranteeing purchases of our products. In the short term, you’ll see some manufacturing move back to NA due to the automotive regulations, forcing 75% content. In the long-term, our automotive manufacturers will either continue to lose price competitiveness globally as it becomes more expensive to manufacture autos for export or they will build plants outside NA for those markets.

      In short, government management of trade isn’t a good thing. USMCA adds more government management of trade than even NAFTA did. #Winning

  10. TRADE WAR IMPLODING!!! 🙂

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