Trump’s China Trade Truce The key to a larger deal will be enforcement of Chinese promises.
https://www.wsj.com/articles/trumps-china-trade-truce-1543790868
Donald Trump had one of the most productive foreign trips of his Presidency this weekend as he announced a tariff truce and new trade negotiations with China. Then he threatened to blow up his Presidency by terminating Nafta before Congress passes a replacement. More on the latter nearby, but at least his cease-fire with China is good news for the economy and American workers.
Mr. Trump and President Xi Jinping stepped back from the brink of total trade war while giving themselves room to strike a deal over new trading and investment rules. Mr. Trump agreed to hold off on raising tariffs to 25% from 10% on $200 billion of Chinese goods in January. This would be a huge tax on American consumers, as well as businesses that have Chinese suppliers.
The White House says China will start buying U.S. farm goods immediately, which will be a relief in farm states where incomes are down. China will also buy an unspecified “but very substantial” amount of farm, energy, industrial and other products to reduce the bilateral trade deficit. More customers are better, though the overall U.S. trade deficit won’t fall much. The U.S. will run a trade deficit with the world as long as it also runs a capital surplus.
Far more important, the two countries will begin talks this month on China’s predatory behavior including forced technology transfer, intellectual property and cyber theft, and regulatory abuses against foreign companies. The parties have 90 days to agree or Mr. Trump will apply the 25% tariff—and presumably more on top of that.
The key here is less China’s promises than enforcement. China always claims to be playing by the rules but then its regulators find excuses to block a transaction, or a joint-venture partner suddenly becomes a business competitor with stolen IP. The U.S. and foreign companies need the ability to report abuses and then have their governments respond quickly so China will enforce its own rules.
On that score, this deal would be more promising if the Trump Administration had a coalition of allies to confront China as a united front. Europe, Japan, Canada and other countries have similar complaints about China’s mercantile practices. Beijing would be more likely to stop if it faced retaliation from multiple countries, not merely the U.S. The U.S. could assemble such a coalition of the willing if Mr. Trump dropped his steel and aluminum tariffs and his threat of car tariffs.
The larger message of this truce is that both sides seem to appreciate that an economic Cold War would benefit neither. The Chinese are worried about their slowing and heavily indebted economy, while Mr. Trump needs growth to have a chance at re-election. The incentive to strike a deal is compelling.
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