Matt Cookson
Early on Monday morning, the Trump administration said it had reached a preliminary agreement with China on a trade deal that would reduce tariffs on both sides. This comes after over a month of uncertainty caused by President Trump’s ‘Liberation Day’ tariffs. While Wall Street will cheer this news, investors and policymakers should remain wary of any trade agreement made with China.
Back on April 2nd, President Trump announced tariffs on a wide range of countries in what he called ‘Liberation Day.’ For China, these tariffs were combined with tariffs Trump had already put in place in response to China’s role in the production and smuggling of fentanyl. The Chinese didn’t take this lying down, responding with a series of tariff hikes on U.S. goods. Back-and-forth responses between the two nations resulted in tariffs from each country exceeding 100% on imports from the other country.
China is an important trading partner for the U.S.. The total value of trade between the two countries is almost $600 billion. This doesn’t factor in the investments, educational exchanges, and other partnerships between the two countries. By itself, China is responsible for just under 30% of the world’s manufacturing output. Almost double that of the U.S.. Therefore the U.S. has a lot to lose in a trade war with China.
Even excluding the recent trade war, China’s trade relationship with the United States has been fraught in recent decades. Market restrictions, IP theft, unfair trade practices, and fentanyl production are just a few of the issues between the U.S. and China. Despite frequent protests, especially on IP theft and fentanyl, there has been little improvement on the Chinese side.
Even areas where China pledged to do better have seen little actual improvement. In 2015, China agreed that it would not steal any intellectual property. However, in the ten years since this agreement, tech sector experts have seen little long-term improvement. Estimates of the value of IP stolen by Chinese entities range from $180 to $540 billion per year. Economic theft of that magnitude is hardly a sign of a reliable partner.
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