President Trump has, predictably, been crowing about the preliminary agreement he signed with China on Wednesday. But is it, like so much else with this White House, more hype than substance? I spoke with business columnist Josh Barro to find out.
Ben: The U.S. and China signed a “phase one” trade deal this week, which will at least temporarily put a halt to the escalating tensions that have characterized the relationship between the two countries since Trump came into office. Most of the heavy tariffs on Chinese goods will remain in place, with China agreeing to spend $200 billion on American goods by the end of 2021. Other issues that have divided the two countries (China’s cybersecurity practices and its subsidizing of industry being two big ones) will have to wait for a presumed “phase two.” I’ve seen a lot of people saying that this agreement is much more hype — something for Trump to point to and claim victory — than actual accomplishment. Do you agree with that?
Josh: The fact that it covers a period that runs until after the election, I think, goes to the essentially symbolic nature here. This “deal” is relevant mostly in that it is an agreement between Trump and China not to further escalate the trade war before November, which is important — it takes away a significant downside risk to the economy. Trump will not be well-positioned, six months from now, to decide the Chinese have been failing to live up to their end of the bargain on purchases. He won’t want to escalate in a way that could cause the stock market to drop right before the election.
Beyond that, the deal does not address the long-standing disputes between the U.S. and China over trade, and it leaves in place almost all of the tariffs Trump has imposed. So it’s not a breakthrough. It’s yet another instance where Trump foments a problem, takes a step part of the way back from the problem, and then gets to say that he has fixed something.
Ben: Do you think he has played this wisely, politically speaking? His tariff policy has had a small overall effect on the American economy, but there have been negative repercussions concentrated in the Midwest, among farmers and manufacturers that are crucial to his coalition there.
Josh: He seems to have shored up his position with farmers directly by providing massive subsidies, so I’m not really sure he’s caused himself any problems in those states. And while his policies create a lot of losers in manufacturing, they also create some winners. I think his hostility to free trade has an appeal to people in manufacturing communities who feel they’ve been hurt by past agreements and past expansions of global trade. And the overall strong economy has given him some room to pursue this policy that is a bit of a drag on it. Public opinion about the economy is generally positive right now. So as a political matter, I think he has actually played this issue fine. But it’s not a major substantive accomplishment. The USMCA deal, similarly, does not materially change our trading position with Canada and Mexico. It’s a set of small, incremental changes, not the break with past trade policies that his professed hostility toward NAFTA would suggest he favors.
Ben: But unlike that area, the tariffs on China do feel like a substantive break with past policy, and one that seems at least somewhat likely to linger even if he loses in November. If, say, Joe Biden won, do you see him doing a total 180 on this? The answer would probably be very different if Bernie Sanders is the next president.
Josh: All the Democratic candidates (except maybe Delaney, I’d have to look) have been reluctant to say they would simply roll back the China tariffs. Biden’s comments about trade with China have at least implied he would try to resurrect the Trans-Pacific Partnership — he said at the September debate that we are 25 percent of the world economy and we need another 25 percent of the world to sign up with us to take on China together. That was Barack Obama’s goal with the Trans-Pacific Partnership before it got derailed by domestic politics. Biden also said the president is wrong to fixate on the trade deficit with China, that our key complaints should be about things like intellectual property and also on steel dumping (the latter being an issue that Trump actually has focused on).
I do think a President Biden would start from a position where there is more domestic political impetus for a tough line on China. And he’d be able to engage more productively than Trump because he’d ask for things they can actually deliver, unlike asking them to close the trade deficit, which is driven in significant part by matters outside their policy control. I don’t think he’d repeal the tariffs on Day One, but I think he’d look pretty hard for a mutual climb down that the Chinese would gladly participate in. And yes, I think Sanders would be very different. He’s genuinely hostile to free trade and would face less pressure from inside his party to preserve existing trade agreements than Trump has faced.
Ben: If Trump wins again (sorry, I just had a panic attack) how difficult would these “phase two” details be to hammer out? They seem incredibly thorny — though the same could have been said of the NAFTA renegotiation, and, as you pointed out, the result was a largely cosmetic retouching that looked a whole lot like the original agreement, so things could go in that direction.
Josh: It would be extremely difficult to get fundamental changes to the trading relationship. China is defensive of its economic model. It wants to protect and grow its domestic firms to compete with major foreign ones, and sees policies like restrictions on market access and the acquisition of foreign intellectual property on favorable terms as essential to doing so.
Essentially asking China to adopt liberal economic principles is a big ask. We have good reasons to want it — and even good reasons to believe it would promote Chinese economic growth in the long run — but ultimately it’s not our decision to make.
So I think there’s a reason that this administration, like prior ones, has failed to get China to change. It’s not just that they lack a clear strategy; the problem is genuinely hard. The president would have some political advantages next year — he’d no longer be facing reelection, and he wouldn’t be distracted by other issues that distracted him in the first year of his first term (health-care repeal and tax cuts were at the top of the list, not trade). So he’d have a better argument to China that he’s willing to take on political pain from an escalation if they won’t meet his demands. Still, no matter who’s president, I think the best bet is not too much change in the relationship.