Free Trade

Trump's Trade Deal With China Was an Abject Failure, Just Like the Trade War

China ended up buying fewer American goods over the past two years than it did before the trade war started, despite promises from both sides to increase trade.

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Managed trade has failed once again.

The so-called "phase one" trade deal inked in December 2019 by former President Donald Trump and Chinese President Xi Jinping might have put an end to the spiraling trade war between the two countries, but the agreement did not result in China buying more American goods, as both leaders promised it would. In fact, during the two years covered by the deal, China imported fewer American goods than before the trade war began—meaning that the deal did not even succeed at patching up the damage caused by Trump's bellicose trade policies.

"After two years of escalating tariffs and rhetoric about economic decoupling, the deal did little to reduce the uncertainty discouraging the business investment needed to restart U.S. exports," writes Chad Bown, a senior fellow at the Peterson Institute for International Economics, a pro-trade think tank.

For two years, Bown has been tracking the promises made by both countries in what Trump called the "phase one" deal—there never was a phase two—as it has become increasingly apparent that those goals would not be met. In his final analysis of the two-year agreement, which expired on December 31, Bown concludes that "China bought only 57 percent" of what it had promised, not even enough to reach pre-trade-war levels.

As part of the deal, China agreed to increase its purchases of American-made goods by at least $200 billion over 2017 levels (that is, pre-trade-war levels) by the end of 2021. Those increased purchases were supposed to be spread across multiple sectors of the American export economy, something Trump promised would provide much-needed relief to farmers, manufacturers, and other businesses harmed by the tariffs he'd imposed since taking office.

But there were signs right from the start that the export promises were unrealistic; more about Trump's domestic re-election campaign than a serious concession from China. As The Wall Street Journal noted shortly after the deal was made public, Trump was effectively asking for "an unprecedented jump in bilateral trade." To meet its obligations, China would have to hike its purchases of U.S. goods by 60 percent over the pre–trade-war baseline. It is unsurprising that this fundamentally unserious and politically motivated arrangement never delivered on its promise.

The real problem with Trump's "phase one" trade deal, however, had little to do with the specific dollar amounts attached to the purchasing promises. By demanding that China buy more goods from the U.S.—as if the two countries were actually large corporations doing business with one another, not a collection of people and businesses who actually do trade with one another—Trump was actually making huge concessions to the Chinese regime.

"The purchase commitments undermine U.S. global economic leadership and risk the U.S. ceding the high ground on the preeminence of its economic model," wrote Joshua Meltzer and Neena Shenai, researchers for the Brookings Institution, in 2020. "In fact, they betray long-standing core principles espoused by the U.S. such as free markets and the rule of law, and, in the process, affirm and elevate the Chinese state-led and controlled dirigiste model of economic growth and trade."

"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," warned Dan Griswold, a senior research fellow at the Mercatus Center, a free market think tank, in December 2019. "All for a promise of more exports that may or may not ultimately materialize."

We now know that the promised benefits did not materialize. But the costs certainly keep adding up. Auto manufacturers, for example, shifted supply chains to avoid the cost of tariffs and economic uncertainty created by the trade war—by relocating some American manufacturing jobs to China, which has become a large and growing market for auto sales. BMW, for example, shifted much of the production of its X3 sport-utility vehicle from Spartanburg, South Carolina, to China after reporting that tariffs had cut the company's American profits by about $338 million in 2018. The higher costs imposed by the trade war caused Tesla to announce that it was "accelerating construction" of a new plant in Shanghai.

Overall, Bown estimates, exports to China would have been $26 billion higher in 2020 and $39 billion higher in 2021 if not for the impact of the trade war and subsequent trade deal. That doesn't account for other losses sustained during the trade war, like the increased farm subsidies paid for by American taxpayers and the run-of-the-mill cost increases created by tariffs.

Aside from some positive developments with regard to China's treatment of intellectual property and financial services, probably the only good thing about Trump's "phase one" trade deal is that it has now expired.

"President Trump's trade war and phase one agreement did little to change China's economic policymaking," Bown concludes. "Beijing seems intent on becoming more state-centered and less market oriented."

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  1. Phase one of a new trade deal with China, bomb Wuhan and bejing and say the bombs originated in a wet market

  2. Four dimensional chess!

  3. FFS Reason, Trump is no longer in office.

    Maybe fewer than ten whataboutism articles per day would freshen things up.

    1. What else have they got?

      1. Nothing. Nothing at all.

      2. baseball! oh wait ...

    2. And yet I'm still paying for his theft. Keep em coming, Reason.

      1. And that's different from every other president in my lifetime...how?

        1. This is the first time I'm aware an executive order taxation scheme extended beyond the executive's term. Every time prior, a president enacted an illegal unconstitutional executive order tariff, they ended within months of enacting while that president was still in office.

      2. We're paying for your theft.

    3. Wow, you are like a poster child for the short-attention-span news consumer who can't see beyond whatever 30 second outrage the various right and left wing media keep trying to distract us with. Kudos to Reason for actually following up on the "and then what happened". There is far too little of this in modern journalism.

  4. Who knows, in three years maybe you’ll talk about the wonderful policies of the current administration, instead of ruminating endlessly about times past and the Orange Man Trauma that you soft fuckers suffer.

    1. No no, Boehm had to vote for Biden because Trump was uniquely horrible. Especially on trade.

  5. Interesting, another anti-trump article after Trump has been out of office for more than a year.

    So, what would be your alternative Eric? Try nothing at all? This was one prong of strategy for dealing with China. It didn't work out, time to try something else. You're complaining about it not working when Biden isn't trying anything at all.

  6. China ended up buying fewer American goods over the past two years than it did before the trade war started

    I wonder if anything significant happened in the last two years...

  7. So, you're saying trade agreements with China don't work. Got it.

    Why would a "free trade" agreement with them be different?

    1. Because Boehm the Birdbrain Logic goes like this: If it helps the Red Communist Chinese, it must be good.

      Boehm the Birdbrain is little more than a China quisling.

    2. Please also continue to ignore the billions in corporate theft and increased security costs to businesses from china's actions. Thats all fine under free trade apparently.

  8. Was this unexpected? The fact is that China had President Trump's number from the start. They recognized that he was incompetent and took advantage of it from the very start. The fact is that other countries do their homework and know who they are sitting across the table from. The former President thought that other countries were led by the same bumpkin to whom he had sold steaks and university degrees.

    1. So ad hominem attacks and no evidence even presented. Cool story bro.

      At least boehm begrudgingly admitted we saw improvements in ip theft and finance. And if it wasn't for covid, the deal and purchase agreements would look much better, but let's pretend the failure was all on the plan and not the world upending pandemic.

      1. Go back and look at the recent history. The former President started out saying that "trade wars are easy to win" and things went downhill from there. China retaliated against our farmers, big Trump supporters. So then the former President had to start a Welfare for Farmer to correct his mistake. Best yet he was so wrapped up in getting a deal to correct his error, that he had to overlook the Coivd19 pandemic that started in China. The Chinese had his number, they knew he was a con man and they just bested him.

        1. China would never release a bio weapon because they were getting ass raped by a Cheeto.

        2. Lmao the guy famous for saying "Chy-Na Virus" overlooked the fact they started the pandemic.

          And how did China retaliate against our farmers? 2020 and 2021 purchases were about 30% lower than targeted in the trade deal but were still RECORD SALES to China.

          So he didn't meet the target of the trade Deal. farmers still sold more agricultural products to China than ever before. That's good even if it isn't as great as the target of the deal.

          1. "While China did not meet its purchase commitment for 2020, U.S. agricultural exports to China for 2020 did reach a record $26.4 billion. However, work remains to be done on technical barriers and purchases to ensure China’s commitments are met."

            https://www.trade.gov/country-commercial-guides/china-agriculture

          2. In 2019 China imposed tariffs on US soybeans, wheat and other grains. This resulted in loses to US farmers that the Former President's administration tried to offset with payment to farmers.

            1. So? You’re cherry picking. Which is expected of you.

  9. China's economy is starting to look a little... collapse-y.

    1. You’re saying there’s a chink in their armor?

      1. Their goose is cooked... With MSG

      2. 1.4 billion

  10. >>during the two years covered by the deal, China imported fewer American goods

    busy with the Accelerated Global Death Panels

  11. You know what? I'm fine with that.

    1. The only people who promised anything were government officials who didn't have the right to promise it in the first place.

    2. We should boycott and divest from the Chinese as long as they allow their government to perpetrate such evils in their name.

    1. Plenty of opportunity to move business to India, Vietnam, Thailand, etc..

  12. "China ended up buying fewer American goods over the past two years than it did before the trade war started, despite promises from both sides to increase trade."

    There are so many excellent arguments against a trade war with China, but this, unfortunately, isn't one of them.

    Can you think of anything that happened over the past couple of years that might have interfered with China's ability to deliver on its promises?

    Can you talk about trade (or anything else) without glazing people's eyes over by making it all about Trump?

    1. Regarding question number two, no they cannot.

    2. I think he's wrong anyway.

      https://www.trade.gov/country-commercial-guides/china-agriculture

      "While China did not meet its purchase commitment for 2020, U.S. agricultural exports to China for 2020 did reach a record $26.4 billion. However, work remains to be done on technical barriers and purchases to ensure China’s commitments are met."

  13. I, for one, thank God almighty that we have a competent leader in place to straighten out the mess that Trump left behind.

    Let's go Brandon!

  14. The last two years represent nothing. The Democratic shutdowns of the economy, and Biden's supply chain crisis has skewed everything. Hard to tell what the impact would have been if not for that.

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