It is a good rule of thumb to be suspicious of any “official” announcement just before the close of business on a Friday afternoon. The timing suggests that the news is anything but good and the details are hoped to be buried by the weekend that is soon to begin. In that light, the timing of Friday’s announcement of the long-sought U.S.-China bilateral trade agreement is a stark contrast to the claim of U.S. officials that it is “amazing” and “historic.” A more accurate assessment is that the deal is valuable if it ends the — self-inflicted — pain and uncertainty created by their trade war, but objective experts note that gains from the agreement were not worth the costs of the fight.
U.S. President Donald Trump has denounced Chinese trade policy since announcing his candidacy, and in March 2018 he began imposing tariffs on Chinese exports to the United States to end the trade deficit that he claimed was proof of the country’s unfair practices and to halt the theft of U.S. intellectual property. In the 21 months since, he imposed tariffs on two-thirds, or $370 billion, of Chinese imports — sums that he wrongly claims are paid by Chinese firms; In fact they are paid by U.S. companies and often passed on to consumers — and had threatened another $160 billion on Sunday.
China retaliated with sanctions of its own, raising tariffs to 25 percent on $60 billion worth of U.S. products, and threatened another round on 3,300 U.S. products if Trump followed through with his threat. The result was a steep plunge (53 percent) in U.S. agricultural exports to China and virtually no impact on the trade balance.
The prospect of further deterioration of relations prompted both governments to reach a “phase one” deal last week that is essentially a truce, not a peace agreement, in their trade war. The agreement commits China to additional purchases of U.S. products — the exact amount is unclear, but the U.S. has said the number is $200 billion over two years — along with the opening of Chinese markets to U.S. financial companies, restrictions on the terms of technology transfer, an end to currency manipulation and establishment of a dispute resolution process that allows either country to reimpose sanctions in the event of a complaint. Most significantly, both sides agreed to suspend tariffs set to go into effect on Sunday and the U.S. agreed to reduce tariffs on $120 billion worth of products from 15 percent to 7.5 percent.
While the U.S. administration heralded the deal, others were less enthusiastic. China called it a “win-win agreement,” but officials were restrained when they discussed the news at a press conference late Friday night. The biggest U.S. tariffs — 25 percent on $250 billion of manufactured goods — remain in place. China has studiously avoided any commitment to purchase a specific amount of agricultural products, but Trump has said the figure could reach $50 billion a year, a number that many experts believe is more than U.S. farmers can produce.
The biggest shortcoming is that the deal does not address the systemic issues that are at the heart of China’s trade and industrial policies. Trump’s economic advisors and trade negotiators argue that China subsidizes its businesses and facilitates, if not actively participates in, the theft of intellectual property. Robert Lighthizer, the chief U.S. trade negotiator, acknowledged this shortcoming — as well as the fact that the deal will not rectify the trade imbalance — adding that this deal is only the first step in what will be a long effort to fix the “unfair” relationship between the U.S. and China. No one expects that to conclude soon and China is likely to delay, hoping that Trump will not be re-elected and it will have better luck with the next U.S. administration.
Japan, like every other major trading country, is pleased to see a trade truce. The global economy has been slowed by the fight, with losses extending well beyond the two combatants. Japan has suffered collateral damage as businesses that built China into their supply chain have been badly hurt by tariffs on exports. Japanese companies that ship from China to North America have seen sharp drops in exports along with significant decreases in share prices.
It is difficult to see the compromise that has been reached as justifying the harm that has been done. Astute observers note that many of China’s purported “concessions” were likely in any case. In addition to the economic damage, the global trade regime has been undermined, as its two biggest participants have openly resorted to bullying and unilateralism. There is not only the danger of more in the future — Trump steadfastly refuses to give up the tariff threat — but the prospect that other countries will copy them. This deal is a victory in only the narrowest of terms.