Explainer

Does Trump Have a China Trade Deal Yet or What?

Sort of. If you can call it that. Pity about all the lost billions of dollars.

Shipping containers at the Port of Los Angeles, one of the main gateways for trade with Asia and which is suffering lower cargo volumes due to the trade war, on Nov. 7.
Shipping containers at the Port of Los Angeles, one of the main gateways for trade with Asia and which is suffering lower cargo volumes due to the trade war, on Nov. 7. Mario Tama/Getty Images

The U.S.-China trade war has brought years of rising tariffs, product boycotts, bankrupt farms, and general malaise to the global economy. Yet both sides may be close to finalizing an initial agreement to essentially call a truce, which could end the tariff escalation and revitalize some U.S. exports to China. Ahead of next year’s election, where do things stand with the Trump administration’s toughest trade fight?


Are there finally the makings of a deal?

In a word: maybe. Though it’s not clear if both sides agree on the scope of what’s acceptable, the time frame to carry it out, or even the time and place to ink the initial agreement.

On Thursday, Chinese Commerce Ministry officials said both sides had agreed to roll back existing tariffs as part of the so-called “phase one” agreement while China would resume its purchases of U.S. commodities like soybeans, pigs, and natural gas.

The problem is that the Trump administration is warring internally—partly because plans for U.S. President Donald Trump and Chinese President Xi Jinping to ink the deal at the Asia-Pacific Economic Cooperation meeting in Chile fell through after that summit was canceled because of political unrest in the country. That led to talk of a Trump-Xi meeting in the United States, which prompted China to seek greater concessions, which in turn prompted a heated debate inside the administration about relaxing even more tariffs.

Some officials, such as chief economic advisor Larry Kudlow, said some tariff rollbacks were part of the agreement. Others, like trade advisor Peter Navarro, insisted that no tariff reductions were on the table, before saying Friday that the United States could well defer the next scheduled tranche of tariffs, due to be implemented on a range of Chinese consumer goods in mid-December. Others, like former White House advisor Steve Bannon, think talk of tariff reductions is just hardball Chinese negotiating tactics unlikely to find favor with Trump.

But the consensus expectation is that Trump and Xi will find a way to reach some sort of truce at a still-to-be-determined meeting next month that would trade limited U.S. concessions for limited Chinese concessions. Stock markets like good trade headlines, even if there’s little substance to back them up, and Trump likes buoyant stock markets.

“My best guess is that this agreement is mostly for show. The market seems to appreciate signs of trade peace and doesn’t worry too much about substance,” said Simon Lester, a trade expert at the Cato Institute. “So a tariff freeze, some soy purchases, some complicated legal provisions that people don’t understand, and a declaration of a ‘historic’ trade deal might be what the administration is going for, with this objective in mind.”


What about all the existing tariffs?

Chinese officials have been pretty clear that they want to see all U.S. tariffs, which cover the majority of Chinese exports to the United States, eventually removed as part of a wider agreement. Hawkish Trump administration officials like Navarro have been equally adamant that the existing tariffs are the only leverage the United States has on China to keep pushing for deeper concessions in further trade talks; Navarro said Friday that maintaining the majority of existing tariffs, including those that just went into effect in September, is crucial to reaching a broader, more substantive agreement down the line.

The problem is that while the tariffs have dealt a blow to Chinese exports to the United States, they’ve dealt a bigger blow to U.S. consumers and businesses. Though Trump himself continues to insist falsely that China is paying most of the cost, since May, U.S. consumers and businesses have forked over almost $37 billion to the U.S. Treasury in the form of higher tariffs on Chinese goods—or more than $113 yanked out of the pocket of every person in the United States, in exchange for nothing. And that doesn’t count the other harms of the tariff-fueled trade war: plummeting agricultural exports and rising farm bankruptcies, a multibillion-dollar federal farm bailout, a manufacturing recession, and a global slowdown that is dampening business investment and increasing the odds of a wider recession.

The good news is that the United States seems prepared to shelve the planned next round of tariffs, which would have directly hit U.S. consumers (shielded to a certain extent so far from the cost of the tariffs) by targeting big-ticket electronics and consumer goods like computers, mobile phones, and gaming consoles—right during the holiday shopping season.

“As the economy starts to slow down, it gets a lot riskier” to levy tariffs on high-end items that consumers buy for themselves, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.


So is this a win for the United States?

As things stand right now, it’s hard to see how. The Trump administration started the trade war with China on the basis of a so-called Section 301 investigation that identified structural problems with the Chinese economy—state subsidies, theft of intellectual property (IP), lack of market access—that the administration said posed a threat to U.S. firms. The first phase of the agreement is unlikely to address many, if any, of those original complaints, though China has made some modest changes to its IP protections and offered some improvements in market access for all countries (not just the United States).

And while advisors like Navarro are holding out hope for even bigger breakthroughs in the next phase of talks, it’s not clear there will be any next phase, at least not next year—meaning this might be all there is.

“There’s not going to be any meaningful progress in 2020,” said Derek Scissors, a China expert at the American Enterprise Institute. “The point of this agreement for China was just to get the U.S. to stop pointing a gun at them during an election year.”

Another trigger for Trump’s trade war was the big U.S. goods trade deficit with China, which was $347 billion the year before Trump took office and which Trump called a threat to the U.S. economy, even though economists argue that bilateral trade deficits don’t matter. After three years of tariffs and deliberate efforts to rebalance that trade relationship, the administration has little to show for it. Chinese exports to the United States fell last year, but U.S. exports to China fell even more, resulting in an even bigger trade deficit of $419 billion last year.

That’s one reason many Trump administration officials are desperate to maintain the existing tariffs: There are signs that Trump’s policies are finally starting to turn that deficit around, progress that could be jeopardized by premature concessions to China. Through the first nine months of 2019, the goods deficit was down to $263 billion, down from about $302 billion in the same period the year before.

“That’s the big argument against revoking those September tariffs,” Scissors said.

Meanwhile, other countries (most recently France) have already secured their own deals to boost agricultural and manufacturing exports to China, without suffering years of self-inflicted pain to get there. Other countries, including more than a dozen Asia-Pacific countries, have meanwhile made progress on a pair of mega free trade pacts (both of which exclude the United States) that lower trade barriers and will increase trade between China and the rest of the region.

In other words, Trump has ladled on three years of tensions, tariffs, broke farmers, and a global manufacturing slump to essentially get back to where things stood when he took office, while other countries have moved ahead.

“They never had a strategy that made sense,” Lovely said. “We’re back to where we were in 2016.”

Keith Johnson is a senior staff writer at Foreign Policy. Twitter: @KFJ_FP

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