Trump trade wins seen providing few economic gains
President Trump has touted the United States-Mexico-Canada Agreement (USMCA) and the “Phase One” deal with China as key wins for his administration, but he may not get the economic boost he seeks in 2020.
Economists expect economic growth to slow in 2020 for the third year in a row and see only a minor bump, if any, from the trade deals.
“No one’s forecast has changed as a result of these arrangements,” said Mark Zandi, chief economist at Moody’s Analytics, who has advised several Democratic campaigns.
“They’re on the margins in terms of their macroeconomic impact,” he added, referring to the two trade deals.
Trump has touted the deals as major advances in trade, and hopes to use them to enforce his campaign message of “promises made, promises kept.”
As a candidate, he promised to get tough on Chinese trade practices and rewrite the North American Free Trade Agreement (NAFTA), which USMCA effectively did.
Trump called the Phase One deal he signed Wednesday “a momentous step” that would have the effect of “righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers, and families.”
But despite making some promises on intellectual property (IP) and technology, experts say the deal left the toughest issues for Phase Two.
“The agreement on IP and market access is open to interpretation, and tariffs imposed on each party’s imports from the other remain largely unchanged,” an analysis of the deal from S&P Global Ratings found.
“Consequently, S&P Global Ratings sees the deal as just the end of the beginning rather than the beginning of the end of the dispute,” the analysis continued.
Chris Jahn, who heads the American Chemistry Council, an industry group, complains that the deal does little to alleviate pressure from the trade war.
“This deal keeps costs high by maintaining existing tariffs in the United States and keeps the China market closed to our exports,” he said.
Chemical companies, he continued, “still face additional U.S. tariffs on $20 billion in imports of chemicals and plastics from China and $11 billion in exports of chemicals and plastics to China.”
Trump agreed not to impose new tariffs as part of the deal.
The other major accomplishment of the Phase One deal was a commitment from China to add $200 billion to its purchases of U.S. goods and services over two years. It could help relieve some of the squeeze on farmers, who have been crushed by China’s counter-measures in the trade war between the two countries.
But China has been known to walk back similar commitments in the past.
Even if it follows up on the purchases, Zandi argues that U.S. producers would not be able to scale up production to accommodate the new demand, and would more likely just redirect their exports from other countries to China.
“Our trade deficit with China might decrease, but our overall trade deficit would not,” he noted.
USMCA, on the other hand, was welcomed by businesses as a much-needed update to NAFTA and hailed by Democrats for their hard-fought inclusion of stronger labor and environmental rights.
“The world has changed dramatically since the United States, Canada and Mexico first agreed to tear down barriers to free trade a quarter-century ago,” said National Retail Federation CEO Matthew Shay.
“This updated agreement will modernize trade among our closest trading partners and pave the way for continued prosperity across the borders of North America as the global economy continues to evolve,” he added.
When it comes to producing an economic bump, however, experts say that the deal is far from transformative.
“This new NAFTA won’t bring back hundreds of thousands of manufacturing jobs, as Trump nonsensically claims,” said Lori Wallach, Director of Public Citizen’s Global Trade Watch.
Even without a major increase to economic output or productivity, Trump may head into the election feeling confident about the economy.
Regardless of whether they produce significant economic effects in the coming 10 months, Trump can still offer up the deals as evidence that he is following through on his promises.
With the stock market continuing to reach new highs and unemployment hovering at a 50-year low, Trump may, at the end, not need extra economic tailwinds from new trade deals as he makes the case for his reelection.