After Trump declared that doing business with China was bad business and bad for the US, because of America’s trade deficit with China and China’s alleged ‘unfair’ business practices, he levied tariffs on Chinese imports, which were quickly followed by Chinese retaliatory measures, which the US then countered with yet another round of tariffs.
After the game played out for roughly another two months, the two parties decided to come to the table and try to hash out their differences. Washington and Beijing have apparently agreed to back off on the tariff threats, America, if China buys more American stuff, and the Chinese, if America backs off on its punitive tariffs.
But what’s the story here, and is this even really addressing the problems that were cited by Trump when he decided to introduce the tariffs in the first place?
Triumphant tones coming from the White House over the weekend are inconsequential, Moody’s chief economist said Monday, deflating hopes that the U.S. is gaining major ground in its negotiations with China aimed at averting a trade war.
“I think it’s a lose-lose. There are no winners here,” Mark Zandi told CNBC’s “Squawk Box Europe” on Monday. “This is face-saving, because clearly they’re not going come to terms on anything — at least, not in the near-team.”
Zandi was referring to Treasury Secretary Steven Mnuchin’s announcement Sunday that a looming trade war was “on hold” as the world’s two largest economies agreed to drop their tariff threats and discuss parameters for a wider trade agreement.
China consented to continue discussing measures under which it would purchase more U.S. products in order to reduce the $335 billion annual trade deficit between the two, but no specific dollar number was put forward. Zandi pointed to this as evidence that neither Washington nor Beijing had a plan, nor did either know what it specifically was they wanted from the ongoing talks.
“When you get right down to it, what exactly are they going to do? Are they going lower the Chinese-U.S. bilateral trade deficit? It’s just not going to happen. They’re kicking it down the road because they really don’t know what they want,” Zandi said.
‘A silly debate argument’
President Donald Trump had initially set out a demand that China close its trade surplus by $200 billion, to which Beijing has not acquiesced. Zandi criticized this figure, noting that U.S. exports to China are currently $150 billion annually, and that it doesn’t have the capacity to produce and export that scale of increase in goods to China.
“What’s that going to buy? For $200 billion?” the economist asked. “We don’t want to sell them technology, where our comparative advantage is, so we’re going to sell them $200 billion more of what? Soybeans? Boeing aircraft?”
Trade experts have argued that Chinese demand for these U.S. products will not sufficiently increase to the point where it would need to purchase such a volume of American goods.
Zandi added that the discussions should have instead been focused on structural issues like intellectual property (IP) protection for investors, echoing the sentiment of many economists that the trade deficit figure should not be the focus of the U.S.-China trade relationship.
“America wants the Chinese to buy $200 billion more of what America produces, but it’s neither here nor there when it comes to protecting IP rights, which is really what we should be focused on here,” he said. “I think it’s a silly debate argument that is going to end up nowhere.”
Other experts have warned that a deal with China focused on a dollar figure for trade is not a sustainable solution in the long term. Frank Lavin, a former U.S. under-secretary of commerce for international trade, told CNBC on Monday that a narrow focus on the trade imbalance misses the more pertinent issues at hand.
“If they (China) give you a check, watch out. They’re sort of buying you off and getting you just to go away for that money, so be careful of that,” Lavin said. “I’d say focus more on structural changes, getting market opening, fair treatment, level playing field, IP (intellectual property) issues, investment protection.”
U.S. Trade Representative Robert Lighthizer made this point Sunday, saying in a statement: “Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake.”
‘Fruitful and efficient’
Administration officials, meanwhile, touted the progress as a positive for the U.S., and markets have reacted positively to the news.
Chinese Vice Premier Liu He described the talks as “pragmatic, fruitful and efficient,” a marked shift from more negative sentiment earlier in the week that led Trump to say Thursday that he “doubted” the trade negotiations would succeed.
A joint statement from the weekend’s meetings said: “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services.” The purchase increases are said to be predominantly in the agricultural and energy sectors.
Talks between U.S. and Chinese officials have been underway in recent weeks following a rapid escalation in tensions between the two economic powerhouses.
Trump has long criticized China’s growing trade surplus with the U.S., and in March set off a trade spat by proposing import tariffs on a number of Chinese goods. The move set off a tit-for-tat dispute with a series of threats from each country that proposed hundreds of billions of dollars worth of tariffs on each other’s goods, sparking fears of a global trade war.
Essentially, the Trump administration is saying to the Chinese ‘look, we might pull back on those tariffs that you don’t seem to like all that much if you decide to be a good country and buy more of our stuff’, which the Chinese appear to be receiving quite well. Cough up $200 billion more to send to America and the tariffs go away.
But how does this really address the underlying reasons why Trump imposed the tariffs to begin with? As the CNBC article points out, this initial understanding does not meaningfully address China’s ‘unfair’ business practices, namely the alleged theft of intellectual property from American firms as a condition for market access.
But Trump has been on this trade deficit bandwagon lately, and so it seems that if China addresses this, then the US will go its merry way and not be quite as insistent or impose penalties for ‘bad behaviour’.
But $200 billion is still a lot more than the alleged $50 billion that Trump alleged is the monetary figure for stolen intellectual property damage, so that it might seem that China is providing a lot more value to America than it would seem to be getting in return. Is Trump’s manner of ‘deal making’ ‘winning’ the day?
And if the reason why those tariffs were imposed in the first place isn’t experiencing a resolution, then are we to conclude that the reasoning provided by the Trump admin to impose them initially were entirely bogus?
Can we chalk them up to America pursuing a course of action as a ‘retaliation’ for something that they really don’t view as a priority, meaning that America is being dishonest with the international community?
An outsider looking at this situation may conclude that Trump didn’t really care about China’s business practices, and this was all really about the trade deficit.
Politically, however, China still wouldn’t be being a ‘good country’ if it really moved forward on this because of the economic initiatives that it has been erecting throughout Asia, which the US has perceived as a threat to America’s security.
It doesn’t contemplate China’s increasing economic and military cooperation with another ‘bad guy’ nation, Russia.
And what about China’s economic ties with Iran, which America has deemed a state sponsor of terror? After all, China just opened a rail link with Iran, promised to help them with their nuclear development, and is set to expand commerce with Iran the near future.
What about China’s ‘nefarious’ activities in the South China Sea?
How about the manner in which China is ‘influencing’ Kim Jong Un and the North Korean peace process?
What about China’s attempt to compete with the US petrodollar with its new petroyuan, potentially undermining the value of the dollar’s position on the global market?
None of this jives with America’s foreign policy interests, so that it really can’t be conceived that America is just going to stand by and watch as China increases its international political and economic prowess.
A couple of different possibilities arise as to how and why the negotiations are taking place now, before all of America’s tariffs come into effect, and why America seems to be willing to settle for so little. Clearly, Trump is not intending to use this as a way of settling the multitude of issues and conflict of national interests in these trade talks.
Perhaps Washington is realizing that it can’t afford a prolonged trade war with one of its largest trading partner, which shifts China’s focus to supplementing its market with goods from other nations that don’t fit Washington’s interests, such as Russia. Or, perhaps Trump is attempting to pass off a reduction of a trade deficit as a victory, in order to say to the public that he is accomplishing yet another election promise, as a part of his disjointed foreign policy.