Trade War Pause Leaves Few Happy

U.S. President Donald Trump’s mini-deal with China to keep the trade war from spiraling further bucked up stock markets and will likely defer another tariff escalation—but it will also disappoint nearly everyone, including both U.S. businesses and consumers forced to pay billions more for imported goods and China hawks in his own administration who hoped to use U.S. leverage to force real changes to China’s economic model.

While Trump said this week that he was after a comprehensive deal, many have long suspected he would settle for a tiny truce and call it a victory. He has long been at odds with his more hawkish trade advisors, especially Peter Navarro, who wanted to use the leverage of massive U.S. tariffs on Chinese exports to force Beijing to change its entire economic model, especially when it comes to industrial policy, subsidies, and intellectual property, and who also want to decouple the two biggest economies in the world. None of those long-standing, structural issues with China were addressed by the trade truce announced Friday.

Instead, Trump has managed to climb partway out of the hole he dug himself. Under the interim agreement, China said it will buy $40 billion to $50 billion worth of U.S. agricultural products. Before Trump took office, China was a huge and growing market for U.S. farmers, but the president’s trade war led to Chinese reprisals that hammered U.S. producers of soy, pork, and other agricultural products. The administration has paid out more than $28 billion in subsidies to farmers. In the meantime, other producers, especially Brazil, have gobbled up U.S. agricultural markets in China; the latest trade truce will at best partially undo that damage.

A partial trade deal focused on commodity trade with a U.S. promise to pause tariff hikes would amount to a “complete Chinese victory,” Benn Steil of the Council on Foreign Relations said earlier this week. “Soybeans and natural gas—that’s stuff they want, that’s not a concession. Why did we go through the past year of hell?”

Other elements of the mini-deal announced Friday are equally modest, including initial reports of a currency pact. Trump has long complained that China manipulates its currency for export advantage, even though that hasn’t been the case for nearly a decade—quite the opposite, even as Trump openly talks the dollar down to steal an edge in exports. In the short term, China can sign up to an agreement that will make its management of the yuan a little more market friendly, said Scott Kennedy, a senior advisor and trustee chair in Chinese business and economics at the Center for Strategic and International Studies, but in the longer term, Beijing won’t likely give up the flexibility to intervene with the yuan, and it’s not clear how such provisions would ever be enforced.

“Making a pledge to avoid competitive devaluation is easy,” Kennedy said. “But down the road, faced with a slowing economy, and financial sector challenges, China will be in a more difficult position.”

China also pledged stronger enforcement of intellectual property rights, although draft U.S. notes on the deal emphasized only “some progress” on the issue. Such promises have been made repeatedly ever since China started negotiations to join the World Trade Organization decades ago, with little to show for it. The country remains the world’s largest infringer of copyright laws, with one in five U.S. companies saying their intellectual property has been stolen by a Chinese firm.

For China hard-liners, these steps are far too small. The goal of figures such as Navarro, an economist and co-author of the controversial book Death by China, has long been to fundamentally decouple the U.S. and Chinese economies, bringing manufacturing back to the United States and reducing the potential leverage of Beijing in the event of political or military conflicts. None of that is present in this mini-deal, nor does it look to be on the table for any final settlement.

“Any deal is entertainment for Wall Street,” said one source close to the hard-liners. “Obviously [the] China side has no intention of actually acting nor would they honor any commitment. Trump understands how China runs intuitively. In NYC and Atlantic City he surely had to deal with people like that.” Talking points on the deal distributed to staffers emphasized Trump was working toward an enforceable deal but played down the possibility.

On the Chinese side, state media has remained very quiet about the mini-deal as of publication. Attention was fixed instead on President Xi Jinping’s current visit to India and on the imposition of bans on firms tied to atrocities in Xinjiang earlier this week, described by the state publication People’s Daily as “deliberate filth spread against China’s achievements.” There is no appetite for backing out of the political-nationalist paranoia that has left U.S. firms fearful of accidentally offending Beijing, and American politicians furious about the imposition of censorship beyond China’s borders—instead, politicized bans are becoming even more petty and arbitrary.

Even if this temporary detente in the trade war turns into a real peace deal, there’s no resetting frayed relations between Washington and Beijing.