Trump’s Trade Deal With China Was an Abject Failure, Just Like the Trade War

The managed trade program has again failed.

Although the so-called “phase 1” trade agreement was signed in December 2019 between former President Donald Trump, and Chinese President Xi Jinping, it did not allow China to purchase more American goods as the leaders had promised. In fact, during the two years covered by the deal, China imported fewer American goods than before the trade war began—meaning that the deal did not even succeed at patching up the damage caused by Trump’s bellicose trade policies.

Chad Bown writes, who is a senior fellow of the Peterson Institute for International Economics. The think tank supports trade and says that after two years, there was no relief from the uncertainties.

For two years, Bown has been tracking the promises made by both countries in what Trump called the “phase one” deal—there never was a phase two—as it has become increasingly apparent that those goals would not be met. Bown’s final analysis of two years of negotiations, December 31st, concluded that China had only purchased 57 percent of its promises, not enough for it to attain pre-trade-war levels.

China also agreed to buy American-made goods at least $200 Billion more than 2017 (pre-trade war levels), by 2021. Trump promised that the increased American imports would be distributed across many sectors, which will provide relief for farmers and manufacturers who were harmed from the new tariffs.

There were indications that Trump was not going to fulfill his export promises. It was more about Trump’s internal re-election campaign and less about China. This is As The Wall Street Journal noted shortly after the deal was made public, Trump was effectively asking for “an unprecedented jump in bilateral trade.” To meet its obligations, China would have to hike its purchases of U.S. goods by 60 percent over the pre–trade-war baseline. Unsurprisingly, this politically-motivated and fundamentally inept arrangement failed to deliver on its promises.

Trump’s first trade deal was not about the dollar amounts. By demanding that China buy more goods from the U.S.—as if the two countries were actually large corporations Doing business with one another, not a collection of people and businesses who actually do trade with one another—Trump was actually making huge concessions to the Chinese regime.

In 2020, Joshua Meltzer (Brookings Institution researcher) wrote that the purchase commitments would undermine U.S. economic leadership globally and put at risk U.S. economic supremacy. They betray the long-standing U.S. core principles of free markets, the rule of law and affirm the Chinese state-controlled dirigiste model for economic growth and trade.

In December 2019, Dan Griswold (a senior researcher at Mercatus Center), stated that Trump’s demand for China to fulfill quotas on U.S. purchases is only a way of reinforcing Beijing’s hold over the market. It all for the promise that more exports may come about.

Now we know the promises of benefits didn’t materialize. However, the cost of these benefits is increasing. Auto manufacturers, for example, shifted supply chains to avoid the cost of tariffs and economic uncertainty created by the trade war—by relocating some American manufacturing jobs to China, which has become a large and growing market for auto sales. BMW, for example, shifted much of the production of its X3 sport-utility vehicle from Spartanburg, South Carolina, to China after reporting that tariffs had cut the company’s American profits by about $338 million in 2018. The higher costs imposed by the trade war caused Tesla to announce that it was “accelerating construction” of a new plant in Shanghai.

Overall, Bown estimates, exports to China would have been $26 billion higher in 2020 and $39 billion higher in 2021 if not for the impact of the trade war and subsequent trade deal. This doesn’t include other costs incurred during the trade war like increased farm subsidies that were paid for by American taxpayers, and run-of the-mill increases caused by tariffs.

Apart from positive developments regarding China’s treatment intellectual property and financial service, the most important thing about Trump’s “phase one” trade agreement is its expiration.

Bown states that President Trump’s trade war with China and its phase one deal did nothing to affect China’s economic policymaking. “Beijing appears determined to become more state-centered than market-oriented,” Bown concludes.