Business groups worry they won't see a phase two Trump-China trade deal

Businesses are concerned that President TrumpDonald John TrumpBiden campaign: Trump and former vice president will have phone call about coronavirus Esper: Military personnel could help treat coronavirus patients 'if push comes to shove' Schumer calls for military official to act as medical equipment czar MORE’s “phase one” China trade deal, set to be signed on Wednesday, will not be followed by a more substantial phase two, leaving a slew of tariffs in place for at least another year.

The concerns are being raised in part because of the difficult issues that would have to be resolved between Beijing and Washington to win a stage two deal.

“I think there’s a real risk that there won’t be a phase two deal,” said David French, senior vice president of government relations for the National Retail Federation. “They reserved the hard stuff for phase two.”

Businesses breathed a sigh of relief when Trump and China announced they had reached a limited trade deal in principle in October, preventing a substantial increase on tariffs.

But many of the tough tariffs that Trump put in place to pressure China to negotiate a deal in the first place remain in place, raising prices on imports. So are most of the retaliatory tariffs China has imposed on American products.

That is one reason why business sees it as important to get the phase two deal.

“Even after phase one is signed, we’re still going to have an overall tariff rate for items imported from China of 21 percent,” said French. Before the trade war started, he says, the rate was closer to 3 percent.

The deal will leave 25 percent tariffs on $250 billion of Chinese imports, and lower the rate of another $120 billion to 7.5 percent.

“We’re not anywhere close to what would be the historical normal relationship with China,” he added.

The phase one deal is expected to provide relief for farmers, who have struggled since China stopped buying huge amounts of soybeans and other commodities as the trade war ramped up. The White House said China would buy up as much as $50 billion in agricultural products as part of the deal.

While that will give much-needed relief, critics say it’s not enough.

“This can’t be phase one and done,” said Brian Kuehl, co-executive director of Farmers for Free Trade, an anti-tariff group.

“With over 80 percent of the tariffs still in place, the cost to American farmers, businesses and consumers will continue to grow,” he added.

Trump on Thursday said that the next part of the deal may not even happen until after November’s election.

“I think I might want to wait to finish it until after the election because I think doing that we can actually make a little bit better deal, maybe a lot better deal,” Trump told reporters.

One reason business groups have been less enthusiastic than Trump about the deal is that the White House still hasn’t released the agreement text.

“We haven’t seen it yet, so that makes it difficult to state definitively,” said Jeffrey Weiss, a former Commerce Department official who is now a partner at Venable LLP's International Trade Group.

Without the text, whether China will be putting the force of law behind agreements on certain intellectual property provisions, nontariff trade barriers and financial markets remains an open question.

“We won’t know until we see it, and whether they will make those changes to their law and enforce them,” said Weiss.

Beth Ann Bovino, U.S. chief economist at S&P Global, says the Trump administration punted the toughest issues, such as technological export controls, intellectual property theft, and China’s penchant for heavily subsidizing its products and putting its thumb on the scales against foreign companies trying to work there.

“In terms of dealing with the bigger picture, I don’t think we’ve seen many inroads on that. That’s phase two,” she said.

“If phase two does not happen, if discussions and dealing with these big issues does not happen, they’re not going away any time soon, but they’ll still fester and flare up at some time,” she added.

A common view in business circles is that the greatest accomplishment of the phase one deal was to halt and slightly scale back the destructive trade war that Trump himself started. That said, business groups say they are relieved that the period of uncertainty and escalation seems to have slowed.

“Getting that phase one deal, making that progress, made a lot of my clients breath a sigh of relief that progress is being made and some of those tariffs aren’t coming in the near future,” said Jeff Pratt, supply chain lead at BDO, an accounting and business consulting firm.

The hope is that Trump will seek to avoid a major escalation in an election year, though trade issues with Europe and France continue to simmer, and new tariffs may be in the works on items such as French wine and cheese, among other goods.

“For most of the people that I talk with, it’s not a top-of-mind worry whether phase two happens,” said Pratt.

“Most supply chain professionals are wary, and trying to make sure they balance the risk if negotiations devolve and new tariffs are applied.”