5 big wins in US-China trade pact

5 big wins in US-China trade pact
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President TrumpDonald John TrumpTrump reversed course on flavored e-cigarette ban over fear of job losses: report Trump to award National Medal of Arts to actor Jon Voight Sondland notified Trump officials of investigation push ahead of Ukraine call: report MORE’s critics derided the partial trade agreement announced by the White House last Friday. These very same folks who lambasted the president for inflicting a trade war on the global economy, for crushing farmers’ exports and for shattering CEO confidence, seemed disappointed that the dispute might be winding down.

Sen. Chuck SchumerCharles (Chuck) Ellis SchumerOvernight Health Care: Trump officials making changes to drug pricing proposal | House panel advances flavored e-cig ban | Senators press FDA tobacco chief on vaping ban Chad Wolf becomes acting DHS secretary Schumer blocks drug pricing measure during Senate fight, seeking larger action MORE (D-N.Y.), for instance, tweeted that Trump should “[keep] the pressure on” and insist that Beijing change its approach to human rights, among other demands. Where has Schumer been for the past 20 years while China’s abuse of power escalated unchecked by Congress or the White House?

It is true that Beijing did not pledge to completely overturn its economic model, or confess that its growth has been spurred by an astonishing history of thievery. Did anyone actually think they would?

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In fairness, the “glass half empty” response reflected many remaining uncertainties. Spurring skepticism, Chinese state media issued a cautionary note, saying that “the champagne should probably be kept on ice,” at least until the deal is inked by Presidents Trump and Xi Jinping. 

This was followed by reports that Beijing wanted more talks before signing off on the deal. Sources told news outlets that China was pushing for the U.S. to nix additional tariffs of 15 percent scheduled for December, which the White House may be reluctant to do, as it would lessen their leverage going forward.

But, let’s be honest: The subdued response may also stem from fear on the left that resolving the trade battle with China could lead to an acceleration in U.S. growth, raising the chances of Trump being reelected. If a deal is struck, even a partial one, the trade truce might boost waning CEO confidence, essential to revived business investment.

Overall, after an exuberant rally met the announced deal on Friday, investors and pundits exhibited skepticism, and rightly so. We have, after all, been here before.  

Still, there is reason for optimism. Both countries need a deal. China’s exports fell in September for the fifth consecutive month, declining 3.2 percent — more than expected. Also, its imports dropped 8.5 percent, signaling a ratcheting down of consumer spending. That is bad news, especially since industrial output in August grew at the slowest rate in more than 17 years.

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In the U.S., the slowing of the manufacturing sector has been well documented. Spending by businesses clearly has been restrained by the uncertainty created by the trade friction. Consumers, though, are thriving and spending; they remain upbeat, despite the constant alarms about a looming recession. The most recent read of consumers’ mood from the University of Michigan saw its sentiment index spike to 96.3, way above expectations. 

Sentiment should definitely benefit from any sign that the trade furor is headed to resolution. That is but one of the wins in the Phase One deal. There are four more.  

The second: China has agreed to buy $40 billion to $50 billion in U.S. agricultural products. Some observers suggested that sales of that magnitude would hardly make up for the business lost over the past two years. In fact, depending on the timing, they would. Agricultural exports to China peaked in 2012 at $29.4 billion and have been declining for several years. Last year U.S. farm product sales to China amounted to only $16.3 billion. Such sales were expected to decline again in the current year. So, $40 billion to $50 billion is a big number.

It is worth noting that China needs to increase its imports of pork, among other products. Swine flu has sharply reduced pig herds, leading pork prices to soar nearly 70 percent and overall inflation to increase the most in six years. Beijing has strong incentives to fulfill this part of the agreement.

The third win contained in the trade agreement is China’s promise to better protect intellectual property. Though it is hard to imagine Beijing fiercely guarding America’s trade secrets, reduced demands that U.S. firms must operate inside China with 50-50 partnerships would go a long way toward achieving that end.  

Fourth, China has agreed to establish offices in both Beijing and Washington to resolve disputes arising between the two countries. This baby step towards an enforcement mechanism constitutes progress.

The fifth win has nothing to do with the trade pact under review — but everything to do with the fallout from Trump’s confrontation with Beijing. U.S. corporations have been lessening their dependence on China, diversifying their supply chains to other Asian and European nations. It should not have taken a bruising trade battle to deter U.S. firms from relying on an untrustworthy nation, but it did.    

The trade skirmish with Beijing has spotlighted the fundamental dishonesty and thuggery that underpin China’s dealings with the world. Unfair trade practices and theft of intellectual property are the tip of the iceberg. 

Courtesy of the NBA and the ruckus over Houston Rockets General Manager Daryl Morey’s tweet in support of Hong Kong protesters, Americans are now learning how the tyrannical communist country can bully not only its own citizens but business partners all over the world. 

China is a dangerous, powerful adversary. It also can be a valuable partner. President Trump has challenged Beijing to change its ways, a politically risky undertaking but one that’s long overdue. Trump’s trade deal does not get the job done. But it is a valuable step in the right direction. 

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.