Trump signs China deal: Is it worth it?
Phase One trade pact comes at heavy cost to U.S. farmers, businesses, consumers
President Trump signed a limited trade agreement with China Wednesday, but the question remains, was it worth the economic turbulence brought on by his trade war? (One Illinois/Ted Cox)
By Ted Cox
President Trump signed a limited trade agreement with China Wednesday, as critics complained the concessions didn’t come close to making up for the turbulence his trade war brought to the U.S. economy.
One analyst described the so-called Phase One trade pact as “purchases and pledges but no real change.”
Trump launched the trade war almost two years ago with protectionist tariffs meant to revive the U.S. steel industry — and he boasted of that in an appearance at the U.S. Steel Granite City Works later in 2018. China responded with retaliatory tariffs, largely against U.S. agricultural imports, and the war was on.
New tariffs and threats flew back and forth over the next year and a half, but the Phase One deal — signed Wednesday at the White House by Trump and Chinese Vice Premier Liu He — appears to establish at least a temporary truce, while Trump claims the next phase of negotiations will provide more tangible results for U.S. interests.
According to USA Today: “At the height of the dispute, Trump slapped tariffs on more than $360 billion in Chinese imports, including farm equipment, motorcycles, mopeds, electronics, plastics, and washing machines. China retaliated with tariffs on more than $110 billion worth of U.S. goods, including agriculture products, cars, auto parts, chemicals, whiskey, cigars, clothing, and TVs.
“As part of the Phase One deal, the U.S. agreed to shelve plans for tariffs on another $160 billion in Chinese goods that had been set to take effect last Dec. 15. The U.S. also said it would cut by half the 15 percent tariff rate it imposed on $120 billion of Chinese goods Sept. 1.”
China, in return, pledged “to boost its purchase of U.S. goods and services by $200 billion over the next two years, including $32 billion worth of agriculture products.”
The New York Times reported, however, that “Trumps gets his trade deal, China gets the win,” in that the trade cease-fire “comes with a big price tag for the American economy,” and “the long-term effects might end up favoring China.”
Reuters reported just last week that the Washington, D.C.-based consultant firm Trade Partnership Worldwide estimated that, through last November, the trade war had cost U.S. companies $46 billion, and “the lion's share of the higher tariff costs, some $37.3 billion, stemmed from duties on imports from China.”
Trump often tried to suggest that those U.S. tariffs were costing China, but the fact remains that those tariffs on Chinese imports were paid by U.S. companies — and ultimately consumers in higher costs for goods.
Meanwhile, U.S. agriculture exports to China were severely curtailed, with corn and soybeans — Illinois’s prime cash crops — targeted. The U.S.-China Business Council, which generally tries to put a good face on trade relations between the two nations, issued a report last July showing that Illinois suffered worse than any other state in the drop in Chinese exports from 2017 to 2018, losing $1.9 billion. Second-place Iowa didn’t even come close to that, losing $1.2 billion.
Trump tried to alleviate farmers’ pains by issuing $28 billion in handout payments between 2018 and last year, even though Illinois soybean farmers made it clear they wanted “trade, not aid.” Former U.S. Labor Secretary Robert Reich pointed out that total bailout was more than double the $12 billion U.S. investment in the auto industry to keep it afloat in the wake of the Great Recession.
Reich tweeted Wednesday that the United States was increasing China exports by $21 billion, to $50 billion, but at a cost of $11 billion in losses to U.S. farmers and $28 billion in those bailout payments, for a total U.S. loss of $39 billion. “You do the math,” he added.
Trump’s protective tariffs might have had a short-term benefit for steelworkers, but the rest of the manufacturing economy suffered. The U.S. Federal Reserve Board issued a report just last month stating: “We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices,” due to higher costs for basic materials and higher prices at the consumer end.
“This is largely a deal on Chinese terms,” Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States, told USA Today. “There is nothing we know about this deal that China wouldn’t like. And there is nothing we know about this deal that China probably wouldn’t have been willing to do some time ago.”
He described the deal as “purchases and pledges but no real change.”
Trade experts have scoffed at Chinese pledges to buy more U.S. goods, especially farm produce, as U.S. farm exports to China have never topped $26 billion in a year.
Daly told USA Today that China has a long history of failing to buy as many U.S. products as it has promised, “and even if the Chinese live up to their commitments this time, there remain questions about whether U.S. farmers could produce enough crops to fill their orders.”
New Chinese protections on intellectual property are also timed to benefit that nation, which has been increasingly improving its innovation and now has key patents to protect, for instance in solar energy and other so-called green technology, where it’s been pulling ahead of the United States.
According to USA Today, Trump called the agreement “a transformative deal that will bring tremendous benefits to both countries” and pledged to exact more substantive concessions in the next round of trade talks.
Critics, however, were dubious. “All the big trade issues between the U.S. and China remain unaddressed and punted into the future,” Clinton administration trade official David Rothkopf told USA Today. He called the Phase One deal “a sham.”