Trump Concedes The Trade War To China

NDN was an early opponent of the trade war launched in March 2018 by the Trump Administration. We argued that China did in fact commit trade abuses on a wide scale, but that the most effective mechanism for forcing a change in that behavior was through multinational trade negotiations involving US allies that offered China benefits if it committed to genuine liberalization (such a mechanism, the TPP, did exist before Trump unilaterally withdrew in January 2018). We predicted that Trump's alternative, a significant unilateral trade war with China, would instead cause significant pain to the US economy, would not create the leverage to force actual structural reforms, and would likely end with Trump "achieving" some cosmetic concessions from China as he worried that the trade war would harm his re-election chances in 2020.

As has become clear over the past week, this is exactly what has happened. The trade "deal" announced on Friday contains no details about the structural reforms that were the explicit justification for the trade war in the first place - no meaningful commitments on forced technology transfers, no meaningful commitments on industrial subsidies, and no changes to Chinese law regarding IP theft (for years China has made similar "directives" on IP reform as it did in Friday's announcement but has habitually broken them). Instead, the only "achievement" from the deal was a promise by China to increase its purchases of US agricultural exports, but even here there are major problems.

First, the level of promised exports is just not very large compared to the pre-trade war trend. The Council on Foreign Relations estimates that without the trade war, US agricultural exports to China would have hit $27 billion in 2019 and over $30 billion by 2022. In addition, the International Trade Commission estimates that the TPP would have further increased US agricultural exports by $7 billion/year - bringing the total to about $37 billion by 2022. In the new China deal, meanwhile, Ambassador Lighthizer announced that China would purchase a total of about $40 billion in US agricultural products in 2021 and 2022. As a result, this "deal" gets American farmers a paltry $3 billion/year more in exports than if Trump had done nothing on China and signed the TPP deal that was on his desk in January 2017.

Second, it isn't even particularly likely that China ends of purchasing this level of agricultural exports in the first place. A key sticking point for the Administration was that China agree to this level of purchases in a written and signed contract, but the trade deal didn't do this and instead just included a promise by the Chinese that they would do this level of purchases (the Chinese themselves gave no specifics on their level of purchases). Even more striking, Chinese officials on Friday still said that their level of purchases would be market-oriented and in compliance with WTO rules, while the $40 billion in purchases likely runs afoul of both of those metrics. As a result, it is very unclear if China will even uphold their end of the bargain, and over the past year they have routinely committed to purchases that they have then not done.

Finally, even if the purchases get done, encouraging the Chinese government to control the export process of the whole Chinese economy is counter to the entire economic strategy of the US vis-a-vis China. We want China to become a more market-oriented economy with a private sector free to import goods from firms and countries of their choosing, but this directly increases state control by the Communist Party. Furthermore, the purchases almost certainly violate WTO rules (for they impose de facto quotas on agricultural exports from other countries), something ironic given that the US has long (correctly) attacked China for violating the WTO with their trade policies. 

What, then, has Trump's trade war with China actually accomplished since it began in March 2018? It has reduced US economic growth by 0.6% ($128 billion), cost over 300,000 American jobs, and reduced the disposable income of the average American household by over $1,000. And what has Trump gotten from China in return? A paltry amount of increased exports and no structural reforms. You can read more about NDN's analysis of the economic costs of Trump's trade war here, and find NDN's broader work on trade and economic policy under the Trump administration here.