December 18, 2019

China Trade Deal

“The United States and China cooled their trade war on Friday, announcing a ‘Phase one’ agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.” Reuters

See past issues

From the Left

The left is critical of the deal, arguing that its predicted benefits are unrealistic and that it does not address the root issues.

“While Lighthizer and Trump are crowing about an expected $40 billion to $50 billion in annual agricultural sales, few analysts believe those numbers are realistic. The highest level of farm products the U.S. has ever exported to China was $26 billion in 2012. Plus, this first phase deal doesn’t do anything about the 25% tariffs already in place on the bulk of goods that China exports to the U.S. Considering this fact, how aggressive will China really be about pursuing increased agricultural purchases and intellectual property protections?”
Editorial Board, San Francisco Chronicle

“While the benefits of the trade war are speculative, its costs are real: The Tax Foundation estimates that Trump’s tariffs have cost Americans more than $88 billion so far, making this one of the biggest tax hikes in history. To cushion the blow, the administration gave $28 billion to farmers — twice the cost of the 2009 auto industry bailout… [Meanwhile] the real issues with China — from trade barriers to militarism in the South China Sea to human rights violations — remain unaddressed.”
Max Boot, Washington Post

“The deal on Friday pushes the thorny issue of China’s state support for its industries down the road, most likely complicating relations between the world’s two largest economies for years to come… It seems to affirm the belief, held by many Chinese officials, that Mr. Trump will back off from his trade-war threats if markets tumble, or if his supporters in agricultural states suffer too much. Even before Friday, Mr. Trump had delayed or canceled tariffs four times this year. Such policy shifts could ultimately encourage Beijing to draw out negotiations [for phase II] even further, to reach the best possible deal.”
Keith Bradsher, New York Times

“From what we can see, there is nothing in this tentative deal that wouldn’t have existed in the absence of the past two years of wrangling. Intellectual property reform has been a long-standing project for President Xi Jinping. China’s first dedicated IP courts were established back in 2014 and have generally dealt fairly with non-Chinese litigants. Penalties, the most glaring weakness in the post-2014 system, are already being toughened. Perhaps that’s come as a result of U.S. pressure — but it fits just as well with China’s domestic priorities… If little has been achieved when [US] leverage was at its highest, even less is going to be achieved once that leverage is ratcheted back down.
David Fickling, Bloomberg

“The way to compete with China on trade is neither sweeping tariffs nor the administration’s futile insistence that China change its fundamental economic model… [We need] public investment in research and production to increase our international competitiveness… A much more focused trade policy would do something our trade competitors, including China itself, does: to see around the next corner of global demand where no country has yet to establish a comparative advantage. China did so with the assembly of consumer electronics, but that’s a low value-added play. We should do so in green technology… There’s a clear path to quickly getting unstuck, one that evinces strong progressive values and an export strategy that supports American workers and their communities, not multinational corporations.”
Jared Bernstein, New York Times

“China presents a more formidable rival than the former Soviet Union ever was. Which means that allies matter more than ever to U.S. power. But unlike his predecessors in the age of the Soviet threat, Trump’s first move in his campaign against China was to sabotage the alliances that once enhanced U.S. leverage… The United States cannot impose its will on China. But it can work with others to write rules that China cannot afford to ignore.”
David Frum, The Atlantic

From the Right

The right supports the deal as a modest but positive step, and argues that the US has the advantage in future negotiations.

The right supports the deal as a modest but positive step, and argues that the US has the advantage in future negotiations.

“The trade deal that President Trump announced with China on Friday isn’t VE Day, but it’s still welcome economic news. The modest deal is essentially a detente that eliminates the damage from pending U.S. tariffs and even makes some progress on longstanding problems like China’s intellectual property theft… China is promising to stop conditioning business licenses or other permits on tech transfers to joint-venture partners… China is also promising new protections against patent theft—notably requiring Chinese firms that inform a U.S. competitor if it is selling a product that includes technology that might infringe on the U.S. firm’s patent. This so-called patent linkage will give U.S. firms recourse to object before they’ve lost market share to the cheating firm…

“Mr. Trump has done more to address Chinese cheating than any previous President, and he is smart to step back and test if China will honor these new commitments. The deal will also help China’s reformers, who want to make these policy changes to overcome its own many economic weaknesses. If China’s mercantilists block reform, Mr. Trump or the next President can revisit the terms. Mr. Trump is showing good faith in giving China a chance to show it can play by the rules of honest global trade.”
Editorial Board, Wall Street Journal

“This looks like a win… Politically, the timing of this is obviously good for the president. He can claim another win on trade just two days after a US-Mexico-Canada trade deal to replace NAFTA was approved in principle by Nancy Pelosi. The vote on that deal is set to take place next week. Pelosi actually took some heat for handing Trump a win in the same week he is being impeached. But more important than the partisan win is the possible end to at least a portion of the trade war with China. That should result in some price relief on consumer goods and even stronger economic growth in the near term. All of that is bound to help the stock market and public perception of the strength of the economy.”
John Sexton, Hot Air

“The U.S. has a far more adaptive and diverse economy than China. China’s economy is inefficient, bloated, dysfunctional—plagued by institutions and policies that are not fit for their purposes. If the tariff war resumes, it will continue to prove much more disruptive to China than to the U.S… Mr. Xi’s purging of more than 1.5 million officials, including top generals and party members, will come back to bite him. In addition to holding a weaker economic hand, Mr. Xi is far more vulnerable to internal rebellion, and therefore more desperate for economic pain relief, than the American president… In every negotiation, pressure is relative, and the U.S. has more political and economic leverage than China

“Mr. Trump is properly recasting China as the main threat to a fair and sustainable global economic system. Multinational companies are gradually assessing the commercial risk that sovereign risk poses to them—the possibility that China will arbitrarily alter laws or regulations or fail to honor government bonds when they mature.”
John Lee, Wall Street Journal

“While Chinese concessions will almost surely fall short, the US didn’t give up leverage (as some wanted) and can respond either to meaningful progress by China or the lack…

“The US should use [the deal] to test Beijing’s intentions. Will American exports soar $200 billion and coercive technology practice halt – no. But clear progress on both fronts would be an excellent outcome. In this light, complaints the deal doesn’t go far enough smack of preferring American capitulation. Sizable tariffs were applied barely six months ago; the PRC won’t undertake major change at the convenience of an increasingly shrill American investor class. The US can now wait to see how China’s deeds fit its words — a good position in an election year.”
Derek Scissors, American Enterprise Institute

A libertarian's take

The deal is pretty good because it reduces business uncertainty, confirms that the administration realizes its approach was unsustainable, and—by formalizing terms to resolve the variety of issues that, frankly, distract attention from the most difficult problems in the relationship—creates needed space to shift focus to the genuinely challenging matters…

“Relative to what was looming (higher tariffs on all imports from China), these terms should be welcome news to most consumers, workers, businesses, and investors in the United States and China, and throughout the world.”
Daniel J. Ikenson, Cato Institute

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