The Uneasy Truce of Trump’s Trade Deal with China – John Cassidy | The New Yorker

USA – China flags

John Cassidy | The New Yorker

When the history is written of how China came to replace the United States as the world’s biggest economy, the interim trade deal that Donald Trump and Liu He, China’s Vice-Premier, signed at the White House on 15 January 2020 will probably be relegated to the postscript.

The economic growth that China has experienced since Deng Xiaoping came to power, in the late nineteen-seventies, is so remarkable that, once you adjust for the fact that prices of the same goods can vary widely from country to country, China’s economy is already about four trillion dollars larger than the U.S. economy, according to the World Bank. As time goes on, this gap will almost certainly get larger and larger.           

The sheer heft of China’s economy explains why so many senior figures from corporate America were sitting in the East Room of the White House on Wednesday, as Trump and Liu signed a ninety-page trade deal that was billed as Phase I of a larger agreement, which is supposed to be negotiated in the coming months and years. For big corporations such as Boeing, Ford, and General Electric, the Chinese market is already a key one, and it has the potential to become an enormous one. But on what terms will these companies be admitted or allowed to expand?

For much of China’s epic period of economic transformation, the terms were dictated by the Chinese, and they tended to be pretty harsh. To set up a factory or office in the Middle Kingdom, foreign companies often had to partner with a local business or buy many of their components from local firms. Often, foreign companies had to teach the firms how to build these components and hand over proprietary technical information. As Keith Bradsher, the Shanghai-bureau chief of the Times, explains, this in turn enabled China to create its own industrial champions, many of which are state-owned or receive heavy subsidies from the government. Other parts of the Chinese economy remained effectively closed to non-Chinese firms. In some areas, such as entertainment, technology, and pharmaceuticals, foreign companies looked on helplessly as their products were pirated and their copyrights breached.

The Chinese growth model is not new. In the early nineteenth century, for instance, many cotton mills in Massachusetts relied on designs that originated in Britain and had been transported across the Atlantic. Setting up low-cost manufacturing facilities, providing subsidies to local producers, and restricting access to potential foreign competitors were key elements of the Asian growth model, which countries like Japan, Taiwan, and South Korea pioneered in the postwar decades. China’s innovation was mainly to apply this model on a massive scale, regardless of foreign complaints.

When Trump came to power, he was determined to force changes in Chinese behavior and to reduce the U.S.-China trade deficit, which had grown to more than four hundred billion dollars. He slapped tariffs on more than three hundred billion dollars’ worth of Chinese exports, and, in August, 2019, he announced that he would expand the duties to include nearly all Chinese goods.

With the trade dispute having already hit American farmers and industrial producers hard, there were fears that an all-out escalation could drag down the entire economy going into an election year, and perhaps cause a big fall in the stock market.

In September, Trump blinked and postponed the new tariffs.

In October, the Administration announced that the two sides had agreed to the outline of an interim deal, which was the one signed on 15 January 2020.

How significant is the deal? Trump hyped it up, of course. “This is the biggest deal anybody has ever seen,” he said. Robert Lighthizer, the hawkish U.S. Trade Representative, who led the American negotiating team, has been more measured. In December, Lighthizer said that the deal “achieves meaningful, fully enforceable structural changes and begins rebalancing the U.S.-China trade relationship.”

But even that assessment may be too optimistic. From the outset, China has been playing a waiting game, looking to outlast Trump. Now it looks suspiciously like Beijing has bought off the American President with some nice headlines about buying more American goods — “They thought it was a fifty-billion-dollar agricultural deal. Now it’s much more than two hundred billion, of which fifty is agricultural,” Trump crowed — while hedging, yet again, on giving up its mercantilist practices.

THE KEY POINT IS THAT THE DEAL DOESN’T END THE TRADE WAR. It is merely a truce — a formalization of October’s commitment not to escalate things further. Until at least the end of Trump’s current term, most of the tariffs he has introduced will remain in effect. According to Chad Brown, of the Peterson Institute for International Economics, the average tariff on imports from China will be 19.3 per cent, up from about three per cent when Trump took office.

Of course, this is something that Trump, the self-proclaimed Tariff Man, sees as a feature, rather than as a bug, in the deal. “I’m leaving them” — the tariffs — “on because otherwise we have no card to negotiate with,” he said.

The body of the agreement contains a lot of detailed language about China’s commitments to protect intellectual property, welcome foreign investment with fewer restrictions, and guarantee market access to foreign competitors. “China will open itself even wider,” Liu said in his remarks.

But Beijing has made similar public commitments before, only to renege on them or slow down their implementation. Last year, the American side was insisting that the Chinese change some domestic laws in order to fulfil their obligations under the trade accord, but there is no mention of this in the interim agreement.

“It really will come down to whether they” — the Chinese — “do what they say they are going to do,” William Reinsch, a former Under-Secretary of Commerce who is at the Center for Strategic and International Studies, told Bloomberg Television.

Trump Administration officials pointed to the enforcement mechanisms contained in the agreement, which include the establishment of a bilateral conflict-resolution body. Here, too, though, there may be less than meets the eye. “The dispute resolution section will have the same problem we’ve always faced,” James Green, a former U.S. trade negotiator, told the Wall Street Journal. “Companies are reluctant to become poster children for market access problems or discriminatory treatment.”

Moreover, the agreement says nothing about two more key areas of conflict: Government subsidies to Chinese firms and the operation of state-owned enterprises. These thorny issues, and others, are supposed to be dealt with in negotiations leading to Phase II of the deal. But the road ahead “is going to be long and difficult,” Reinsch noted.

Post a comment or leave a trackback: Trackback URL.

Comments

  • guyaneseonline  On January 17, 2020 at 12:49 am

    America and China sign a trade deal
    But it will be an uneasy truce

    Finance and economics = The ECONOMIST
    Jan 16th 2020 edition

    Jan 16th 2020
    SHANGHAI AND WASHINGTON, DC

    With his habit of announcing trade deals only for them to dissolve within weeks, President Donald Trump is a standing reminder that talk is cheap. But on January 15th he signed a phase one trade agreement with China alongside Liu He, the Chinese vice-premier, and published its contents for the world to see. The 86 pages set out the terms of a new economic relationship between these two giants. Alongside some welcome measures, there are some howlers—and glaring omissions.

    Throughout the whole, however, runs a common pattern. Clauses that are in reality concessions wrung from the Chinese are often written in such a way that they formally apply to both sides—but with subclauses specifying the actions that the Chinese are to take. For example, pledges to protect trade secrets are accompanied by new processes by which American companies can complain about breaches.

    The deal also addresses several long-standing American complaints about China’s foot-dragging. China pledged that approvals of agricultural biotechnology products will take less than two years. The deal sets deadlines for China to consider licence applications by MasterCard and Visa. And China will lower bureaucratic barriers to imports of American dairy, pork and beef.

    As many a weary trade negotiator can attest, China has a history of reneging on promises. But this deal comes with a novel dispute-settlement mechanism. After a speedy consultation, either party may find fault with the other. (History suggests that the Americans are more likely to feel aggrieved.) If a solution cannot be reached, the accuser can unilaterally impose penalties. The accused cannot retaliate, short of pulling out of the deal altogether.

    It is possible that this mechanism will force China to address American grievances. But it may also cause new problems. It hands huge discretion to Robert Lighthizer, the United States Trade Representative (ustr). Take China’s ever-contentious yuan regime. On January 13th, in a sign of thawing relations, the American Treasury removed China from its list of currency manipulators. But if at some point China is put back on the list, the ustr would now seem to have virtually unchecked power to slap tariffs on it.

    Further problems may be caused by China’s pledge to buy an extra $200bn of American goods and services over the next two years, on top of a baseline of $187bn in purchases in 2017. That is intended to satisfy Mr Trump’s main desire: to close America’s trade deficit with China. But making it happen will probably require China’s government to direct Chinese companies to buy lots of American goods. Both countries will become more reliant on each other, which neither wants. And their other trading partners might be squeezed out.

    The Americans do not seem overly concerned. Mr Lighthizer is keen to move on to implementation, saying that, as the first deal of its kind, “we have to make sure that it works”. The coming months will demonstrate whether the two countries can establish a friendlier dialogue, and whether their relationship can survive America’s more aggressive use of security-related export and investment restrictions.

    The deal is far from a reset. As Mr Lighthizer noted, China’s cyber-intrusions and industrial subsidies still rankle with America. Chinese media, meanwhile, laid out an argument that may become more familiar: if American export restrictions prevent China from fulfilling its purchase commitments, the fault will lie with America.

    A truly grand pact between the two countries is some way off—and indeed, may never arrive. But this modest trade agreement shows how much the status quo has changed. Tariffs on hundreds of billions of dollars’ worth of imports into both countries remain in place, with an ever-present threat of more. This is not trade peace, but rather a trade truce—and a tense one at that. ■

    This article appeared in the Finance and economics section of the print edition under the headline “America and China sign a trade deal”

  • kamtanblog  On January 17, 2020 at 1:49 am

    Interesting background on future deals
    with China. Our world is “global” no longer
    local. We are being force fed like geese
    to be slaughtered by the massive multinational
    corporate. We must wake from our slumber
    open our eyes and see the leaves trees and
    forrest from above political jackasses we
    elect to rule us.

    Google trade weighed index FMI

    $=¥=Yuan

    Until £€$¥ reaches equilibrium the imbalances
    will continue.
    Enter new kid on block to change rules.
    Mr Crypto
    1=1=1
    Now go figure !

    Free and fair trade way forward
    Free of tax and tariffs (protectionist policies)

    Kamtan

  • Clyde Duncan  On January 17, 2020 at 6:57 am

    John Cassidy, the Author, wrote the following [above]:

    China’s economy is already about four trillion dollars LARGER THAN THE U.S. ECONOMY, according to the World Bank. As time goes on, this gap will almost certainly get larger and larger.

    For much of China’s epic period of economic transformation, the terms were dictated by the Chinese, ……. and they tended to be pretty harsh.

    The Chinese growth model is NOT NEW. …….

    In the early nineteenth century, for instance, many cotton mills in Massachusetts relied on designs that originated in Britain and had been transported across the Atlantic.

    China’s innovation was mainly to apply this model on a massive scale, ……

    When Trump came to power, he was determined to force changes in Chinese behavior and to reduce the U.S.-China trade deficit …..

    Trump slapped tariffs on more than three hundred billion dollars’ worth of Chinese exports ….

    In September, Trump blinked and postponed the new tariffs.

    In October, the Administration announced that the two sides had agreed to the outline of an interim deal, …….

    How significant is the deal? Trump hyped it up, of course. “This is the biggest deal anybody has ever seen,” ……

    Now it looks suspiciously like Beijing has bought off the American President with some nice headlines about buying more American goods —

    THE KEY POINT IS THAT THE DEAL DOESN’T END THE TRADE WAR.

    But Beijing has made similar public commitments before, only to renege on them or slow down their implementation.

    *** I intentionally copied and posted the foregoing for the benefit of some Trump supporters that I know – who I believe FAILED ENGLISH COMPREHENSION.

    271-words

  • wally n  On January 17, 2020 at 1:25 pm

    Jackass! who are these people china was/is/always be be predators imagine if the people collecting bribes were still in charge see how he ends his crap….Trumps supporters are …….think of all the small third world countries trapped in debt forever to these crooks?

    • Emanuel  On January 17, 2020 at 2:34 pm

      Wally, it is painful to read the very poor English you use to make your point. It is no surprise that you are such a diehard Trump supporter. With fans like you even the hog sees beauty in the mirror.

      • wally n  On January 19, 2020 at 2:46 pm

        haaaaaaaaaaa me know

  • Clyde Duncan  On January 17, 2020 at 8:05 pm

    “…. the hog sees beauty in the mirror.”

    Emanuel: Dat reminds me – “Mama, what mek ya nose so long?”

    Wait pickney, you will find out. [Today, I would tell um – Stay alive!]

    • kamtanblog  On January 18, 2020 at 3:38 am

      Laang nose …aka Pinocchio !

      U telling porkies ! Lies !

      Nice one …

  • Clyde Duncan  On January 18, 2020 at 7:37 am

    WHAT US FARMERS MAKE OF TRUMP’s TRADE DEAL

    By Holly Honderich | BBC News, Wisconsin

    President Trump has touted his new US-China trade agreement as a boon for America’s farmers, who have suffered under a nearly-two-year tariff standoff with Beijing. BUT WHAT DO THE FARMERS THINK?

    A summary of the new agreement says that Beijing will now “strive” to purchase an additional $5bn (£3.8bn) of US agricultural products over the next two years.

    “THAT WILL RESULT IN GREATER PROSPERITY FOR FARMERS ALL ACROSS THE LAND,” Mr Trump said as he signed the agreement.

    But farmers in Wisconsin – the swing state proudly billed as America’s Dairyland – remain uncertain. And as the president seeks re-election, that could matter.

    IN 2016, MR TRUMP CLINCHED THE STATE BY A 0.8% MARGIN, BECOMING THE FIRST REPUBLICAN TO DO SO SINCE RONALD REAGAN IN 1984.

    IN THREE OF THE FIVE PAST PRESIDENTIAL ELECTIONS, VICTORY IN WISCONSIN HAS BEEN DECIDED BY LESS THAN ONE PERCENTAGE POINT.

    In 2000, this margin was made up of 6,000 votes, in 2004 about 13,000.

    FARMERS MAKE UP ABOUT 11% OF THE ELECTORATE IN WISCONSIN, says Charles Franklin, director of the state’s leading poll at Marquette Law School.
    “They’re a modest bloc,” Mr Franklin says. But even a modest bloc “could be responsible for tipping a ONE-POINT ELECTION”.

    SO HOW ARE FARMERS FEELING ABOUT THE FUTURE?

    ‘IT’S A SLOW DEATH’

    “Every year you lose a few farms, every year you lose a few farmers who don’t want to keep doing this,” says Will Hsu, president of Hsu Ginseng, a ginseng farm in central Wisconsin’s Marathon County.

    Will Hsu’s father, Paul, began ginseng farming in Wisconsin in 1974

    The region is reliably Republican – Marathon County went for Trump over Clinton by an 18-point margin in 2016 – and is home to more than 95% of the United States’ ginseng, almost all of which is shipped to China.

    In the 1990s there were 1,000 ginseng farmers in Wisconsin, Mr Hsu says, growing more than 2-million lbs of ginseng.

    “There are only about 180 farmers left,” he says. “It’s death by a thousand cuts.”

    It is hard work. Ginseng takes three to five years to reach maturity and cannot be farmed on the same land twice.

    And it has been made harder by the trade war, Mr Hsu says, which has pushed tariffs up from 8% to 38%, a punishing reality for farmers who rely on Chinese consumers for their survival.

    Many farmers are bearing costs themselves – lowering prices to offset the added tax.

    It’s not quite devastation, he says, but the pressure on farmers is building.
    “It’s a slow death,” he says.

    Hsu’s criticism of the president’s trade war has raised eyebrows from some in his community, he says.

    “I hear from a lot of farmers who say I’m a little too vocal against Trump’s policies, that I should be supportive of him.”

    BUT EVEN THOUGH HSU MIGHT SUPPORT TRUMP IDEOLOGICALLY, “THERE’S ALSO THE REALISTIC PART OF ME,” HE SAYS. AND “REALISTICALLY, IT’S HURTING EVERYONE AND OUR POCKETBOOKS.”

    ‘FARMERS ARE ALWAYS THE PAWNS’

    Joel Greeno, 52, grew up on a dairy farm in Monroe County in west Wisconsin. It was “pretty much assumed” he would continue the family tradition, he says.

    Therefore, in 1990, he did, buying a 160 acre dairy farm and 48 cows of his own.
    But after twenty years of business, staring down economic ruin, he was forced to sell.

    “It was just excruciating,” he says.

    To Mr Greeno, who now farms vegetables in addition to nightshifts at Wisconsin’s Ocean Spray cranberry factory, Mr Trump’s trade war has added needless stress to an already fragile industry.

    FOR YEARS, WISCONSIN HAS LED THE US IN FARM BANKRUPTCIES.

    In 2019, THE STATE LOST ONE IN 10 OF ITS DAIRY FARMS, MARKING THE BIGGEST DECLINE ON RECORD.

    EXPORTS OF US DAIRY PRODUCTS TO CHINA DECLINED BY OVER 50% IN 2019, and the US Dairy Export Council estimated last year that retaliatory tariffs from China could cost US dairy farmers $12.2bn by 2023 if they remain in place.

    “TARIFFS ONLY HURT US,” HE SAYS. “THERE WAS NO THOUGHT PROCESS WHATSOEVER.”

    Mr Greeno continues: “Our labour is stolen, our lives are stolen, our families are broken and it’s all because we have politicians who are absolutely clueless to the reality of farming.”

    “FARMERS ARE ALWAYS THE PAWNS.”

    ‘Ray of Hope’

    “We’ve dealt with declining prices before, but it hasn’t lasted this long before,” Katy Schultz says as she walks through the barn at Tri-Fecta farms, the 400-cow dairy farm she owns with her two siblings just outside of Fox Lake.

    THE US-CHINA TRADE WAR ADDED “INSULT TO INJURY” DURING A DIFFICULT PERIOD FOR FARMERS, she says. “It was already not great times and not great prices.”

    “I WON’T SUGAR COAT THAT… WE STRUGGLED. WE STRUGGLED WITH EVERYONE.”

    In the weeks before the agreement was signed, people in her community had been talking about the possibilities of a new deal. For some, Mr Trump’s promises gave them a “ray of hope” to hang on through difficult conditions.

    Just one door over from 2,000 acres, a neighbour boasts a towering flag pole on the front lawn, adorned with a massive Trump 2020 flag. It’s not unexpected in Dodge County – which went for Trump in 2016 by a 30-point margin.

    Ms Schultz doesn’t say who she voted for, disclosing only that her siblings were “divided” at the ballot box.

    “I don’t care if they’re Democrat or Republican. I just want to know that they’re rowing in the same boat that I am,” Ms Schultz says. But there are some things the president has done that “you can’t really deny”, like the record-low unemployment rate.

    “Is [the deal] the answer to everything? Probably not,” she says. But, “I think there’s some optimism now.”

  • Clyde Duncan  On January 18, 2020 at 8:09 am

    EU Trade Chief says US-China Trade Deal is Political Stunt

    Trent Murray | Euronews

    While markets have responded positively to the first phase of the new trade deal being signed between China and the US, leaders in Brussels have offered a strong critique of the deal.

    While Beijing and Washington are heralding the pact as welcome respite in an ongoing trade war, the EU’s trade commissioner, Phil Hogan, HAS CRITICISED THE MOVE AS A POLITICAL STUNT DESIGNED ONLY TO HELP TRUMP GET RE-ELECTED IN NOVEMBER’S ELECTION.

    “Let’s look at the detail of what that has actually achieved, we still have 20 per cent tariffs on both sides. This is not going to be good for competitiveness or jobs, which is the desired objective of President Trump,” he said.

    “In the short term, it might work between now and November as a politician, I understand the way it works.”

    Euronews Correspondent Shona Murray told Good Morning Europe the comments from Commissioner Hogan were unusually pointed for a Brussels politician.

    • kamtanblog  On January 18, 2020 at 8:18 am

      Exactly
      Free and fairer trade.
      Removal of all barriers
      tariffs/protectionist/subsidies etc
      policy way forward.
      Free of tax tariffs
      Fair with equal exchange rates.

      Should be work in progress

  • bruce.goldman  On January 19, 2020 at 10:05 pm

    If Trump wants tariffs and protectionism so bad, then why do Argentinians import American soybeans, and why do third world countries import American garbage which passes as food?

    YouTube: (Jamaica & IMF 1970s)

    Jamaican farmers were forced to throw away milk and produce because American produce was flooding the Jamaican supermarkets.

    Companies were forced to use expired chicken and beef from America, while fresh beef and produce were banned in Jamaica due to IMF regulations. Farmers were throwing fresh milk into the waterways because American hormone-laden milk was oversupplying the markets.

    • Ken Persaud  On January 20, 2020 at 3:33 am

      American is a failed experiment . It is an empire that’s being eaten away from within, cancerously. The most corrupt imposter sits in the Oval Office, frighteningly, obsessively with the real possibility that the dumb American voters will re-elect him in November. His tariffs will badly hurt the same dummies who can’t see what a fool and threat he is.

      Ken.

      • kamtanblog  On January 20, 2020 at 3:58 am

        Agree !
        Trump is “copying” the EU protectionist
        trade policy…which will not benefit either
        USA or EU in the long term.
        UK will soon be re-writing WTO rules to
        favour freer and fairer trade.
        Free of tax and tariffs
        Fair without protectionist policy.

        We must stop seeing the leaves on the
        Forest floor and view the planet from
        above the forest.
        For the many not the few !
        My take

        Kamtan

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s