President Donald Trump last week announced a trade deal with China that he called “tremendous” or “tremendously” positive 15 times. The details look far more modest to us, but this truce in the trade war beats the alternative of escalating tariffs that have already caused a significant global economic slowdown.
Trump said China will make some $40 billion to $50 billion more in agricultural purchases over two years and has promised to better protect intellectual property and welcome more foreign financial services. In return the U.S. won’t increase tariffs to 30% from 25% on $250 billion of Chinese goods this week as Trump had planned.
The two countries also agreed to keep talking toward what Trump called a “phase two” agreement that would include the tougher issues such as Chinese technology theft and predatory regulation against American companies. There will also be a new consultation process to address disputes and monitor enforcement. The implication is that if progress continues, Trump will cancel the tariffs planned for December on more Chinese goods.
In essence both sides sued for a temporary peace to forestall further economic damage. China avoids a tariff escalation that has been hurting its exports and induced Beijing to impose capital controls to avoid capital flight and a run on the Chinese yuan.
Trump gets election-year farm purchases that will alleviate the harm his tariff war has done to American farmers. Equity markets should be relieved, and higher stock prices would buoy fading consumer confidence.
None of this amounts to the kind of grand deal that would fundamentally shift China’s relationship to the world trading system.
Assuming the truce holds through the 2020 election, Trump may believe he can then resume negotiations in a stronger position vis-à-vis China.
Trump deserves credit for challenging China’s abusive practices, but he’d be in a stronger negotiating position had his tariffs not done so much to weaken the U.S. economy.
FROM AN EDITORIAL IN THE WALL STREET JOURNAL