Trump’s ‘historic’ trade deal with China is a poor bargain for US businesses and consumers
Date: Thursday, December 19, 2019
Source: South China Morning Post
- Deal offers nothing new on IP, tech transfer, currency, agriculture, financial services or dispute resolution, but lets China off with promises of vague reform
- Meanwhile, US businesses and consumers have been left to continue footing the bill
The trade world waited with bated breath as the December 15 deadline for a deal between the United States and China approached. US tariffs were set to increase yet again on Chinese goods. China would certainly retaliate. Stock markets hovered in anticipation. If the two largest global economies could get trade back on track, then the business world could finally get back to business. A win-win all around.
Two days before the deadline, the Trump administration claimed success, announcing a wide-ranging deal covering intellectual property, technology transfer, agriculture, financial services, currency, trade expansion and dispute resolution. There were scant details.
We have been here before, and therein lies the problem. A “great” deal requires great strides, not just optimistic language and a laundry list of trade chapters.
Take the dispute resolution component of the deal. The fact sheet from the Office of the United States Trade Representative (USTR) described the creation of “regular bilateral consultations at both the principal and working level”.
In a press briefing, a senior government official on background defined this process as an office set up to “assess the implementation and attempt to resolve disputes”. That would start at the working level and if necessary, work its way all the way up to the US trade representative and Chinese vice-premier.
If that sounds familiar, that is because it is. Bilateral discussions have gone on for nearly two decades through Democratic and Republican administrations alike. It went by many names (for example, the Strategic and Economic Dialogue) and failed to move the dial on the same contentious trade issues that plague the US-China relationship to this day.
Even the technology transfer chapter, as summarised by the USTR fact sheet, offers nothing but word play and precious little in guarantees. Again, according to the information made available by USTR: “For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies.”
That certainly sounds good, and yet, the Chinese government has repeatedly denied forcing tech transfers. So the White House is saying that China has agreed to refrain from something it says it is not doing. That is an easy win for China, which gives up nothing in return for lowered tariffs.
US Trade Representative Robert Lighthizer, in an attempt to quell growing criticism of the deal, gave an interview on CBS Face the Nation over the weekend and said that “US$380 billion worth of tariffs to defend, protect US technology” would remain.
He must have meant US$380 billion worth of goods instead, since there is nowhere near that amount being collected in tariffs. Even so, US consumers, manufacturers and importers pay this tax. That is not much of a reassuring deterrent, considering China has not changed any of the structural impediments to trade in the last year and a half.
The agreement also aspires to increase agricultural exports by about US$50 billion a year. That must be seen against the backdrop of the US$28 billion already paid by US taxpayers as a bailout to farmers hit by lost access to the Chinese market.
Add to that the estimated US$40 billion in tariffs already paid by US consumers and firms, according to a recent study by New York Federal Reserve Bank, and Trump’s “great deal” looks less appealing. Most of the tariffs on Chinese goods will remain.
In the post-deal call with the press, a senior administration official said the numbers “will be in a document that will be classified and confidential because of the possible – if those numbers got out – you know, potential market effects or also potential disclosure of business proprietary information”.
Even more incredible is that these exports are supposed to be the result of Chinese state-sanctioned buying. Getting the Chinese government out of the market was one of the critical structural issues that the Trump administration wanted to address at the start.
This deal secretly arranges for the Chinese government to buy a specific amount of US goods without letting markets know about it. That is about as far from “free” as free trade gets and looks more like the planned economy of 1980s China.
None of this, however, gets us back to square one before the tariff fight began. This agreement is merely a pause at the furthest fringe of the trade battle, leaving US companies and consumers to continue footing the bill while businesses face many of the same problems as before. China, meanwhile gets off easy, with promises of ill-defined reforms among a basket of wishful thinking from Washington.