Trump's so-called trade "deal" with China, even if implemented in "good faith," will have little impact on the overall trade picture

Donald Trump seemed to be more “elated” with his new “phase one” trade deal with China than his Chinese counterpart during its signing ceremony today, not necessarily because it was “bad” for China and “good” for the U.S., but possibly because the Chinese didn’t understand why anyone should be “elated” by a process that amounted to treading water after all was said and done. Trump’s claim that this was the “biggest deal that anyone’s ever seen” was his typical empty braggadocio, inflating the minor into the major. In exchange for some minor adjustments on tariffs, China “promised” over the next two years to purchase up to $200 billion in U.S. goods—of which farm produce is not a particularly “large” portion in relative terms, as Trump is claiming to rural voters—over a two year period. 

China did not address actual structural changes in the trade relationship that would make for more “balanced” trade without the use of “force” in the long-term; as it stands, China will allow a temporary dumping of U.S. products on Chinese consumers that they perhaps do not want. China did, however, “promise” not to insist too strenuously on U.S. companies to divulge “confidential” information and transfer technology on demand before allowing them to operate in the country; on the other hand,  China did not promise to stop the practice altogether.  

The limitations of the agreement are obvious; while China agreed to “ensure” that more US imports will be allowed, there is no real penalty if they do not allow it. USA Today noted that “The agreement includes language that could offer China opportunities to wiggle out of its commitments. For instance, in the section dealing with increased imports of U.S. goods, the agreement says that if China fails to meet the terms it would trigger only ‘the consultations’ between the U.S. and China. In other sections, the agreement calls on China to change its practices without offering concrete targets for doing so.” Nick Marco of The Economist also observed that creating an “artificial” market where import targets are not sustainable may lead to the collapse of the agreement within a year. 

It is plain that as usual, Trump was so desperate for an “agreement” for public relations and political reasons that he was willing to accept any deal that has the façade of being as “big” as he wants to call it. In the meantime, American consumers will still be forced to pay higher prices on most Chinese goods because tariffs will remain on $360 billion in Chinese imports, which Trump hopes to use as “leverage” for a “phase 2” agreement, although this “leverage” apparently didn’t provide much in this “phase one” deal. 

But what is going on in the “real world”? According to the Census Bureau’s statistics on foreign trade, the U.S. trade deficit for 2019 through November is a little over $779 billion, which is more than the combined import/export trade between the U.S. and China. That’s compared to $795 billion through November of last year, and $722 billion over the same period in 2017. The yearly trade deficit during Trump’s years in office have been higher that those during any year of the Obama administration, in fact.  By country, the U.S. trade deficit with Canada increased by 25 percent over last year through November; I know Trump supporters are not going to like this, but the trade deficit with Mexico, despite the “new,” renamed “deal,” also increased by a similar amount. The U.S. also still has massively disproportional trade with Japan and Germany, with the trade deficit with the former going up about 10 percent, and the latter down by about $2 billion. 

What about China? It appears that the deficit decreased a little over 10 percent over last year through November, but this appeared to be due to the large decrease in imports from China—larger than the also significant decrease in exports to China. This year’s deficit will still be slightly larger than the one during the last year of the Obama administration, and only slightly smaller than the one in 2017.  But despite the apparent significance of the decrease of imports from China, it appears that U.S. companies did in fact spend the same or similar amount of money for them as in previous years, only that they spent less on the actual goods, with the rest paying for the tariffs, which China itself does not pay. But the decrease in exports to China was actually slightly more significant as a percentage, especially compared to 2017, suggesting the effect of Chinese retaliation.

What this means is that U.S. trade dynamics have changed little if at all since Trump was elected. It remains to be seen if China actually follows through on its “promise” to import more U.S. goods, and whether it tries to “restructure” its consumer market to absorb more U.S. goods—or not, to perhaps grow “accustomed” to tariffs, to the point where it feels it doesn’t need to “deal” with Trump on the issue. And while if China does make a modest effort to “balance” the trade equation, the actual impact on the overall U.S. trade imbalance will likely be minimal. That is just the nature of the world today.