A major effort is underway now to build some form of agreement with China over trade policy, Bloomberg reported last week, but there also is a new cottage industry in Washington trying to predict what the next steps in these talks actually will be.
Amid all that speculation, Bloomberg notes that although the administration began the fight with a carefully “calibrated trade weapon,” intended to rebalance the relationship between the world’s two biggest economies and to achieve a goal of forcing wholesale changes in China’s economic architecture while limiting the pain to businesses and consumers at home.”
The original list of Chinese-made products was valued at $34 billion, matched an estimate of the annual cost to U.S. businesses of Chinese intellectual-property theft and forced technology transfers.
“The items on the list were selected for their potential to inflict pain on industries Beijing has designated as strategically important while taking into account the potential disruption to U.S. supply chains. The task also was intended to throttle back China’s imports without endangering the president’s promised economic boom.
However, that list was equal to 7% of the $505 billion in goods the U.S. imported from China in 2017 — and was seen as “almost as an affront” by the President who decreed it was “too low and demanded it be rounded up to at least $50 billion.”
The result is what began as methodical, calculated penalties quickly became “a tit-for-tat tariff war” that includes more than 70% of bilateral trade in goods and threatens to decouple two economies that once seemed destined to become progressively more intertwined.
In addition, if the two countries can’t resolve at least some of their differences quickly the White House will on Dec. 15 add 15% punitive tariffs on a further $160 billion—a move Bloomberg thinks “could jeopardize America’s record-long expansion.”
These disruptions may yet be averted. President Trump and China’s president, Xi Jinping, appear intent on reaching at least a partial truce by mid-December and in mid-Nov President Trump again signaled he would refrain from a new tariff assault if Beijing agrees to a “phase one” deal that hinges largely on it stepping up U.S. agricultural purchases to as much as $50 billion within two years and curtailing intellectual-property theft.
President Donald Trump sees this first step as the start of a more comprehensive agreement but Chinese officials quietly say they see any future successful phases as unlikely and that commodity purchases will at first simply be at the level they were before the Trump tariffs. Skeptics in the Trump administration also question whether Beijing is willing to close a larger transformative deal with a president running for reelection amid a slowing economy.
Politicians and businesses across the board agree that the administration was right to take on China but many disagree with the approach used. At the same time, the issues being tackled in a first phase of the trade deal are much narrower than the ambitious goals the White House once claimed for itself.
Douglas Irwin, an economic historian at Dartmouth, cautions that while Trump created an opportunity, he risks squandering it as well.
“Are we going to look back and say, ‘This was all a failure’? I don’t think so,” says Wendy Cutler, a former U.S. trade negotiator who leads the Asia Society Policy Institute. “But if we end up comparing what they’re able to accomplish vs. their initial objectives, their accomplishments are going to fall way short. But wow, they certainly raised the stakes and certainly allowed U.S. interests to suffer through the tariffs in this effort.”
Bloomberg argues that the picture that emerges from the administration’s policy moves focuses on its “impetuousness that confounded attempts at strategy.”
Fears of an economic slowdown in the U.S. that coalesced in August appear to have changed the equation. Despite the diminished expectations, Trump and his allies are quick to defend his handling of the trade war.
Critics, on the other hand, point to a U.S. trade deficit that’s on track to end 2019 some $150 billion larger than at the end of 2016 when the administration took office.
A U.S. business community that wants both a short-term end to the uncertainty and longer-term fundamental changes in China’s economic governance is also wondering if it was all worth it. “What we all need now is a trade truce,” says Myron Brilliant, who heads the international division at the U.S. Chamber of Commerce. Whether the fight will prove worth it “will depend on what comes next.”
Irwin, the Dartmouth professor, says that during the War of 1812, one slogan was “on to Canada!” — a promise to annex new territories. When the war ended it was, ‘Not one inch of territory ceded!’ ”
The president “launched the trade war against China and promised to remake the economy.” Irwin says. “We are ending it by saying, ‘They are buying just as much stuff as they did before.’”
So, we will see. This is certainly a political tense moment in Washington and both sides have extremely complicated perspectives. Certainly, the trade dialogue should be watched very closely as it unfolds over the coming weeks, Washington Insider believes.
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