Trade deal with China a gift to American workers
Just in time for Christmas, the negotiated trade deal with China has the potential to be a present under the tree for farmers and small business owners who have taken more than their fair share of harm in the ongoing trade war.
Controversy notwithstanding, the get-tough-with-China approach has had broad support among Republicans, Democrats and the American public. A recent Pew poll shows the share of Americans who have an unfavorable view of China has reached a new high.
Tariffs mean more taxes and less competition, and anyone who thought the trade war would be costless was kidding themselves, even if the most severe effects that many feared have not yet materialized for the U.S. economy. In October, the National Bureau of Economic Research put out an analysis of large multinational retailers which found them mostly bearing the costs of the duties themselves rather than passing costs on to customers. This helps explain why we have not seen the effects of the tariffs in the consumer price index. Meanwhile, unemployment is at 3.6 percent, the lowest since 1969.
But American commodity exporters have taken a direct hit from retaliatory tariffs as China pivots to other sources. Since December 2017, U.S. commodity exports are down over 60 percent. Also hurt have been small retailers, which tend to be less able to absorb the tariffs. A recent survey by online marketplace BizBuySell indicates that China tariffs have increased the cost of doing business for more than one-third, or 37 percent, of small businesses across the United States. Forty-six percent say they’ve lost customers.
China has agreed to buy $200 billion in U.S. goods over the next two years, but that’s not much more than what they were on track to buy from us before the trade war started. The United States exported $120 billion to China in 2017. And given China’s growth rate and hefty appetite for U.S. agriculture and energy, it is hard to make the case that most of those sales would not have occurred anyway. China’s state control over their economy was a main reason for the trade war, so a government agreement for these purchases is ironic, to say the least.
While any commodity purchases will be appreciated by U.S. farmers, let’s be clear: The key details of this agreement will not be how many of our soybeans China buys. The real meat of the deal will be the extent to which it covers China’s technology transfer regime, discriminatory licensing practices, foreign investment restrictions, state-led trading practices that lead to excessive supply that disrupt global markets and state-backed cyber-theft. The U.S. trade representative’s 301 report clearly explains these issues. If President Trump’s approach can instill those changes in China, then it will be a win not just for the administration, but for all countries that engage in trade and investment with China.
One reason for skepticism is that China has a track record of spotty enforcement and compliance. They admit as much in quiet moments. In Paul Blustein’s recent book on China, “Schism,” U.S.-China trade veteran Tim Stratford recalls a discussion with Shi Guangsheng, the negotiator for China’s accession to the World Trade Organization. Stratford congratulated him on completing China’s accession, and then added, “I think you are going to use every grey area and loophole to greatest advantage.” Shi replied, “You really understand China.” This is not uncommon in international trade, but China’s sheer size makes it more impactful.
The trade deal includes a so-called snapback provision such that if China does not live up to key commitments, Trump can reinstate tariffs. The self-proclaimed “Tariff-Man” would be all-too-happy do so if given an excuse like insufficient agriculture or energy purchases or continued state-sponsored cybertheft.
President Trump’s actions make clear he will not wait for a WTO panel to settle grievances with China. The deal affords the United States unilateral leverage to the extent China is keen to avoid tariffs.
A unilateral approach may not be the ideal solution to all of our trade grievances, but it did bring Chinese negotiators to the table. The agreement framework has the potential to give all U.S. economic sectors a gift this season.
Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.