President Trump signed the “Phase One” trade agreement with China today at the White House. The agreement is far-ranging; you can read its entire text here. Among other things, it includes “commitments from Beijing to purchase $200 billion of U.S. products over the next two years, halt intellectual property theft and refrain from currency manipulation.” In return, the U.S. has reduced or eliminated some tariffs on Chinese-manufactured goods, but other duties on $375 billion in Chinese goods will remain in place for now, as an incentive for China to proceed with Phase Two.
Reaction was predictably partisan. On CNBC, Steve Bannon said that President Trump “broke the Chinese Communist Party,” and the U.S. “gave up very little in the end.” On the same program, hedge fund manager Kyle Bass said that he sees the agreement as a “‘temporary truce’ in which the U.S. got the better of China.”
At the New York Times, on the other hand, there was wailing and gnashing of teeth:
President Trump signed an initial trade deal with China on Wednesday, bringing the first chapter of a protracted and economically damaging fight with one of the world’s largest economies to a close.
Has the trade conflict with China damaged the U.S. economy? To some degree it has, although it has certainly hurt China’s economy more. This is the kind of short-term pain that Barack Obama, for example, was unwilling to accept. And yet economic growth under President Trump has been considerably better than under Obama.
The deal caps more than two years of tense negotiations and escalating threats that at times seemed destined to plunge the United States and China into a permanent economic war.
No one thought “permanent economic war” was a realistic possibility, except, perhaps, readers of the always-hysterical New York Times.
The agreement is a significant turning point in American trade policy and the types of free-trade agreements that the United States has typically supported. Rather than lowering tariffs and other economic barriers to allow for the flow of goods and services to meet market demand, this deal leaves a record level of tariffs in place and forces China to buy $200 billion worth of specific products within two years.
Phase One reduces or eliminates some tariffs and leaves others in place for Phase Two. This isn’t really all that complicated, but the Times wants its readers to think that Trump’s approach represents a departure from an imagined, purist practice of the past.
The Times points out that the deal, so far, isn’t perfect:
The deal also does little to resolve more pernicious structural issues surrounding China’s approach, particularly its pattern of subsidizing and supporting key industries that compete with American firms, like solar energy and steel. American businesses blame those economic practices for allowing cheap Chinese goods to flood the United States market, putting domestic firms out of business.
Instead, like the presidents who preceded him, Mr. Trump plans to rely on allies and the World Trade Organization to try to push China to change its ways.
I suppose it would be churlish to ask what Barack Obama, the Times’s favorite president, accomplished on these fronts.
Absurdly, the Times turns the floor over to the shameless Chuck Schumer:
“This Phase 1 deal is an extreme disappointment to me and to millions and millions of Americans who want to see us make China play fair,” Mr. Schumer said on the Senate floor. “President Trump’s Phase 1 trade deal with China is a historic blunder.”
Right, Chuckie. Now let’s hear your critique of Obama’s eight-year-long, supine kowtowing to the Chinese. The only thing Schumer is actually disappointed in is that with a successful completion of Phase One, Trump is marching toward re-election. The Times can’t entirely fail to mention the Phase One agreement’s substantial benefits to the U.S.:
The trade deal contains a variety of wins for American industry, including opening up markets for financial services, pharmaceuticals, beef and poultry.
The text outlines what China will buy from the United States during the next two years. That includes substantial purchases from American farmers, who have been hit hard by the trade war.
Of the $200 billion, just $32 billion, or 16 percent, of the purchases will be of farm products such as oilseeds, meat and cotton. Banks, drug companies and the energy industry are also big beneficiaries.
China has also committed to refrain from forcing American companies to hand over their technology as a condition of doing business there, under penalty of further tariffs. Beijing has also promised to refrain from devaluing its currency, the renminbi, to gain an advantage in export markets, among other pledges.
Which, in turn, means:
The president’s approach may pay off politically. He will head into a re-election campaign with a commitment from China to strengthen its intellectual-property protections, make large purchases of American products and pursue other economic changes that will benefit American business. Even before the deal was signed, Mr. Trump’s supporters said the president took China on and won.
That’s true. But politics shouldn’t overshadow the substance of the agreement. I encourage you to at least skim the complete document, linked above. There is a lot in it, most of which is not being reported. For instance, it addresses the issue of low-quality and sometimes dangerous generic drugs that are manufactured in China, and often are mislabeled.
Another example: I know from my own experience that China’s legal system has been a Wild West environment in which there is no assurance that even the simplest processes, like obtaining records from a Chinese company, are available or reliable. The Phase One agreement tries to bring China into the modern world with regard to legal processes:
Article 1.30: Document Authentication (“Consularization”)
1. In civil judicial procedures, the Parties shall not require formalities to authenticate evidence, including requiring a consular official’s seal or chop, that can be introduced or authenticated through stipulation, or witness testimony under penalty of perjury.
2. For evidence that cannot be introduced or authenticated through stipulation, or witness testimony under penalty of perjury, China shall streamline notarization and authentication procedures.
3. The United States affirms that existing U.S. measures afford treatment equivalent to that provided for in this Article.
Article 1.31: Witness Testimony
1. In civil judicial proceedings, China shall afford a party a reasonable opportunity to present witnesses or experts in its case and cross-examine any witness testifying in the proceeding.
2. The United States affirms that existing U.S. measures afford treatment equivalent to that provided for in this Article.
All in all, Phase One is a significant achievement of the Trump administration, accomplished in the face of hysterical opposition from the Democrats, who implicitly, at a minimum, have encouraged the Chinese not to make a deal, but rather to hold out in hopes of getting to negotiate with a Democrat in 2021. That context makes the administration’s accomplishment doubly impressive.
President Trump understands the dynamic in play between the Red Chinese and the Democrats, and hasn’t been afraid to talk about it. Thus, today he signaled that he is not worried about the 2020 election, and the Chinese shouldn’t hold out in hopes of getting to negotiate with an anti-American like Bernie Sanders or a naif like Pete Buttagieg:
Mr. Trump said if the two sides could reach agreement on the next phase, all of the tariffs he has placed on China would come off.
“I will agree to take those tariffs off if we’re able to do Phase 2,” he said.
But Mr. Trump has already kicked the deadline for another agreement past the November election, and there is deep skepticism that the two countries will reach another trade deal anytime soon.
In other words, Trump is confident that he will be re-elected, and the Chinese should forget their hopes for a Sanders/Biden/Warren ascendancy.
Finally, the Democrats have tried to demonize Trump’s “America First” slogan, but nearly all voters understand that putting America first is basically the president’s job description. The Phase One agreement with China is a good example.