What Can We Learn From Trump’s Half-Baked China Trade Deal?
Four years ago, Donald Trump won the White House in part by promising to rebalance our massive trade deficit with China and reshore lost manufacturing jobs. We’re now less than two months out from the presidential election. While President Trump has imposed tariffs on billions of dollars of Chinese imports and settled with the Chinese government on a half-finished trade deal that looks a lot like a purchase agreement, we’ve lost factory jobs on his watch.
The “Phase One” agreement with China is now in effect, but the president hasn’t exactly been celebrating it on the campaign trail. It comes nowhere near to measuring up to the sweeping reform he promised to accomplish.
So he dismisses it. During a campaign stop in Arizona last month the president announced he was cancelling a scheduled review of the deal’s status, as if to show he drives a hard bargain, but this was bluster; his negotiators held it with their Chinese counterparts and both sides called it constructive.
The deal – narrow in scope, considering the raft of unfair trade practices the U.S. trade representative justifiably accused Beijing of employing – putters along. From the American perspective, Phase One’s success hinges almost entirely on China hitting agricultural, energy and other purchasing quotas, an easy-enough goal for a state-run economy to meet. Those guaranteed sales could be seen by farmers and businesses who have lost income to trade disputes, weather, and pandemic-related market shifts as a reason to reelect Trump.
But data from the Peterson Institute for International Economics shows China is not even halfway to its benchmark purchases. And the latest numbers from the Commerce Department show the monthly China trade deficit was $31.62 billion in July -- or $2.65 billion higher than it was in May 2016, when candidate Trump called it “the greatest theft in the history of the world.”
And there’s not a lot more to assess in the Phase One deal, honestly, because there just isn’t that much to it. It requires China to agree to stiffer intellectual property protections, which will have to be monitored. It has a section on currency exchange rates, but nothing that hasn’t been agreed to before.
So Phase One isn’t significantly lowering America’s bilateral goods trade deficit with China and, considering there are 200,000 fewer factory jobs in America than there were when Donald Trump took office in January 2017, it isn’t creating manufacturing work in the United States. And thanks to the president’s ineffective response to the COVID-19 crisis – which has settled in across the United States, killing nearly 200,000 Americans so far, and pushed the national economy into recession – no one is likely to remember this underwhelming deal when they vote in November.
What can be learned from the Trump-authored chapter of U.S.-China trade negotiations?
First, the tariffs clearly worked in gaining leverage. Broad tariff authority was a tool largely unused by previous administrations, but when Trump took it up the Chinese side snapped to attention and negotiated. That’s not nothing. But the president squandered that leverage quickly.
Second, all of the tough issues are still on the table. The chief drivers of trade imbalance all remain intact: the Chinese state heavily subsidizes ostensibly private businesses and has grown enormous state-owned companies that skew international markets; it encourages overcapacity in many industries that shocks prices and drives otherwise healthy competitors out of business; and it maintains lax environmental and labor protections that unfairly advantage Chinese businesses over workers and nations around the world. What’s more, this government enjoys its many lucrative trading relationships despite committing genocide in Xinjiang and anti-democratic actions in Hong Kong.
Third, tariffs alone won’t reshore manufacturing jobs to America. We need a domestic industrial policy to actually encourage their return, one that includes investments in education and innovation, an infrastructure program to drive spending and improve our national competitiveness, and an adjustment in the value of the dollar to encourage exports. The influence of Wall Street on manufacturing must be reduced; otherwise, we’ll continue to lose global market share. Our goods trade deficit is still not going down, and any import reduction from China has largely been shifted to nations such as Mexico and Vietnam.
And fourth, if you want China to respond to unfair trading behavior with any speed, an aggressive multilateral approach is more appropriate than Trump’s go-it-alone style. We should be bringing allies to these talks, as there are many other governments who aren’t pleased with the neo-mercantilism practiced by the Chinese state. Multilateralism doesn’t necessarily mean reviving the Trans-Pacific Partnership, which promised still more globalizing trade rules written by corporations to benefit themselves over their workers. But the combined market power of Europe, North America, and Japan is far more formidable at the negotiating table than the U.S. by itself.
President Trump started a fight over U.S.-China trade relations and in doing so disrupted them. That was long overdue. But this hasn’t reduced the bilateral trade deficit or returned factory jobs, and it’s unlikely his current strategy will fulfill those first-term promises in a second term. While Trump argues loudly that no one’s tougher on China than he is, one thing is clear: America needs a fresh approach. No American president yet has found the path forward.