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21 January 2020

Trump Signs China Trade Deal, Putting Economic Conflict on Pause


WASHINGTON — President Trump signed an initial trade deal with China on Wednesday, bringing the first chapter of a protracted and economically damaging fight with one of the world’s largest economies to a close.

The pact is intended to open Chinese markets to more American companies, increase farm and energy exports and provide greater protection for American technology and trade secrets. China has committed to buying an additional $200 billion worth of American goods and services by 2021 and is expected to ease some of the tariffs it has placed on American products.

But the agreement preserves the bulk of the tariffs that Mr. Trump has placed on $360 billion worth of Chinese goods, and it maintains the threat of additional punishment if Beijing does not live up to the terms of the deal.

The deal caps more than two years of tense negotiations and escalating threats that at times seemed destined to plunge the United States and China into a permanent economic war. Mr. Trump, who campaigned for president in 2016 on a promise to get tough on China, pushed his negotiators to rewrite trade terms that he said had destroyed American industry and jobs, and he imposed record tariffs on Chinese goods in a gamble to get Beijing to accede to his demands.


“As a candidate for president, I vowed strong action,” Mr. Trump said. “Unlike those who came before me, I kept my promise.”

The agreement is a significant turning point in American trade policy and the types of free-trade agreements that the United States has typically supported. Rather than lowering tariffs to allow for the flow of goods and services to meet market demand, this deal leaves a record level of tariffs in place and forces China to buy $200 billion worth of specific products within two years.

To Mr. Trump and other supporters, the approach corrects for past trade deals that enabled corporate outsourcing and led to lost jobs and industries. To critics, it is the type of managed trade approach that the United States has long criticized, especially with regard to China and its control over its economy.

While other presidents have tried to change China’s economic approach, Mr. Trump has leaned into it. The agreement stipulates that “China shall ensure” that its purchases meet the $200 billion figure by 2021, all but guaranteeing an export boom as Mr. Trump heads into the 2020 election.

“Although the administration claims it wants to enhance market forces in China, the purchase commitments hailed by the president will only strengthen the role of the state in the economy,” said Daniel Price, a former George W. Bush administration official and the managing director of Rock Creek Global Advisors.

The president’s approach may pay off politically. He will head into a re-election campaign with a commitment from China to strengthen its intellectual-property protections, make large purchases of American products and pursue other economic changes that will benefit American business.

China’s leader, Xi Jinping, said in a message conveyed to Mr. Trump that the deal is “beneficial to both China, the U.S. — and the world.” Mr. Xi also said the agreement showed that the two countries, “based on equality and mutual respect, through dialogue and consultations,” can find proper and effective solutions to problems.

At a lavish White House ceremony crowded with cabinet members, lawmakers and executives from America’s biggest companies, Mr. Trump seized on the signing as a counterweight to impeachment proceedings that were taking place across town, where lawmakers were about to vote to approve House prosecutors for a Senate trial.
Read more about how China obtains American trade secrets.

“They have a hoax going on over there — let’s take care of it,” he said.

But the agreement has plenty of critics in both parties, who say that Mr. Trump’s tactics have been economically damaging and that the deal leaves many important economic issues unresolved.

Those include cybersecurity and China’s tight controls over how companies handle data and cloud computing. China rejected demands that the text include promises to refrain from hacking American companies, insisting it was not a trade issue.

And the deal does little to resolve more pernicious structural issues surrounding China’s approach, particularly its pattern of subsidizing and supporting crucial industries that compete with American companies, like solar energy and steel. American businesses blame those economic practices for allowing cheap Chinese goods to flood the United States.

“A ceremony at the White House can’t hide the stark truth about the ‘Phase 1’ China trade deal: The deal does absolutely nothing to curtail China’s subsidies to its manufacturers,” Scott Paul, president of the Alliance for American Manufacturing, which includes manufacturers and the United Steelworkers union, said in a tweet. “All those ‘forgotten men and women’ in U.S. factories have, once again, been forgotten.”

The administration has said it will address some of these changes in Phase 2 of the negotiations and is keeping tariffs in place in part to maintain leverage for the next round of talks. Mr. Trump said he would remove all tariffs if the two sides reach agreement on the next phase.

“I will agree to take those tariffs off if we’re able to do Phase 2,” he said.

But Mr. Trump has already kicked the deadline for another agreement past the November election, and there is deep skepticism that the two countries will reach another deal anytime soon.

As part of the deal, Mr. Trump agreed to reduce the rate on tariffs imposed in September and forgo additional import taxes in the future. But the United States will continue to maintain tariffs covering 65 percent of American imports from China, according to tracking by Chad Bown, a senior fellow at the Peterson Institute of International Economics. That leaves the United States with an overall tariff rate higher than that of any other advanced nation, as well as China, India and Turkey.

China will still tax 57 percent of imports from the United States in retaliation, according to Mr. Bown, though it’s possible some of those levies may be waived in the weeks to come.

The two sides did not immediately distribute copies of the agreement in Chinese, raising the question of whether translation issues had been fully resolved and whether the final text would be as demanding of the Beijing government in the Chinese version as in the English version.

“We also need to be sure that the wording of the agreement is the same in both the Chinese and English versions — history has shown that mismatches become easily exploited loopholes,” said Ker Gibbs, the president of the American Chamber of Commerce in Shanghai.

While updates about the trade war transfixed investors for much of the last two years, the official signing of the deal was greeted with something of a shrug. The S&P 500 rose roughly 0.2 percent. A gauge of semiconductor companies, which have been particularly sensitive to the trade war, fell more than 1 percent.

The deal came under fire from top Democrats, including Senator Chuck Schumer of New York, who criticized the agreement for failing to address China’s state-owned enterprises and industrial subsidies. He suggested that President Xi was privately laughing at the United States and that China has “taken President Trump to the cleaners.”

“This Phase 1 deal is an extreme disappointment to me and to millions and millions of Americans who want to see us make China play fair,” Mr. Schumer said on the Senate floor.

Wendy Cutler, a vice president at the Asia Society Policy Institute who negotiated trade pacts for the Obama administration, called the gains “meaningful, but modest.”

“Because the United States was willing to compromise with China and not press them on the most difficult issues, they were able to reach positive ground,” she said.

The trade deal contains a variety of victories for American industry, including opening up markets for biotechnology, beef and poultry. Banks, insurers, drug companies and the energy industry are also big beneficiaries.

China has also agreed not to force American companies to hand over their technology as a condition of doing business there, under penalty of further tariffs. And it will refrain from directing its companies to obtain sensitive foreign technology through acquisitions. The agreement also includes a pledge by both countries not to devalue their currencies to gain an advantage in export markets.

The president trumpeted many of China’s concessions during the signing ceremony, singling out audience members who will benefit. He called out a litany of Wall Street executives, many of whom have been pressing for greater access to China’s financial services market, including Stephen A. Schwarzman, the chief executive of the private equity firm the Blackstone Group, and Kenneth C. Griffin, the billionaire founder of the hedge fund Citadel. He also mentioned the chiefs of Boeing, Citibank, Visa and the American International Group, and the chip makers Micron and Qualcomm.

Referring to the energy purchases in the agreement, Mr. Trump told Senator Joni Ernst, the Iowa Republican, who was in attendance: “You got ethanol, so you can’t be complaining.”

But those victories have come at a heavy price. The uncertainty created by Mr. Trump’s tariff threats and approach to trade has weighed on the economy, raising prices for businesses and consumers, delaying corporate investments and slowing growth around the globe. Businesses with exposure to China, like Deere & Company and Caterpillar, have laid off some workers and lowered revenue expectations, in part citing the trade war.

And other sources of tension remain in the United States-China relationship. The Trump administration has taken a tougher approach to scrutinizing Chinese investments and technology purchases for national security threats, including blacklisting Chinese companies like Huawei, the telecom firm.

“I think it’s maybe a useful pause in the downward spiral of U.S.-China relations,” Susan Shirk, a professor at the University of California, San Diego, said of the trade deal.

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