Quick Thoughts on the Trump China Trade Deal

I wanted to follow up for my piece on BV about the Trump China trade deal especially as I think many people have written or made comments that are more partisan than informed in nature.  The other thing to note is that there is important nuance that simply isn’t being picked up. (Here is the short version of the US-China 10 point agreement).

  1. This is not a major trade deal. The agreement has 10 items that are pretty limited in scope with regards to the industries they cover. This simply is not a major landmark agreement.
  2. That does not make it irrelevant or insignificant. Assume for a minute that both sides faithfully implement what is agreed to, it can be considered a solid step forward. Opening up beef exports, credit rating, LNG, and payment services to US firms is not insignificant.
  3. If this is a stepping stone agreement that marks the beginning of additional work to reach other deals, it is a very good deal. If the are no other market access agreements, it will border longer term on the insignificant. Too many people in all walks of life are looking for that one big score or legacy defining agreement or event, when the reality is marked by incremental progress.  If this marks the end of progress on market access agreement between he US and China, this can be considered a borderline insignificant advance. However, if it builds trust that negotiators work to build upon and reach additional agreements, even if just incremental improvements, this can be considered a good stepping stone agreement.
  4. Trump did not get played because the US gave up almost nothing. Of the 10 points, 6 are about market opening access for US firms. Even saying 4 points focus on US concessions however, overstates what Trump “gave up”. One “concession” was to send a US delegation to this weekends One Belt One Road Forum. Another “concession” was to agree to treat Chinese banks like other banks in the US given the spate of problems Chinese banks have been having with money laundering investigations stemming from weak internal controls. Both barely qualify as concessions. The only “market opening” concession was in the market for cooked poultry exported from China. Now the lack of Trump giving up anything should tell you that there was not a lot of meat to this agreement, but it is inaccurate to say Trump “got played”.
  5. If you look at just the economic impact, most likely US got a lot more than China. I have not seen any type of estimate yet either from official or unofficial, but based upon just comparing the cooked poultry exports from China to US exports of LNG, beef, payments, and credit rating, the economic impact balance would seem to tilt in the direction of the US. Again, this is not a major agreement, but on balance from these points, seems to tilt towards tht eUS.
  6. The Chinese did not make wrenching concessions as much as formally agree to open areas they had already committed to or now have incentive to import. We could go point by point but nothing here was any new major concession by the Chinese. For instance, China had agreed to allow payment service providers into China when they joined the WTO in 2000. They refused for a decade, then got sued by Obama, lost at the WTO, then refused to negotiate to open up for another 5 years, then started to issue initial rules last year. Given that the PBOC owns Union Pay and with the advent of WeChat and Alibaba as major payment providers, China felt they could begin opening this up. Expect them to use this as Ant Financial tries to buy Union Pay.  LNG imports fit nicely with their desire to move away from coal and they have started buying large amounts from other sources as well.  Most everything the Chinese side agreed to was either a domestic policy target they have already started executing with other countries, started rolling out in other forms, or agreements they had made previously they had just not executed.  I don’t think there is one “new” concession here or something that was not to some degree in the pipeline.

I am trying to choose my words carefully because there is nuance and detail that needs to be conveyed. The point I would emphasize most is point #3: if this is the end of economic deals between the US and China, I would probably rate this deal a failure. However, if this is the first of others or if China even is on the receiving end of continued pressure and reforms of its own volition a la Milton Friedman, then I would call this deal a good stepping stone success.

Do not get sucked into the need to have a landmark legacy defining deal because in international economic relations that is rarely rarely the case.  Most work is done through incremental agreements on mundane things that will culminate in larger agreements.

Also remember, many of the “concessions” made by the Chinese were things that like payment services they agreed to almost two decades ago. The Chinese have a lot more to verifiably implement here than the US.

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