All wars have casualties, and President Donald Trump’s trade war with China is no exception. It has been particularly hard on U.S. farmers who grow soybeans, a major South Carolina crop, and has deterred manufacturers such as Volvo in Ridgeville from making new investments. Nationally, the damage has put a lid on economic growth, dimming President Trump’s reelection prospects. China’s economy also is struggling with a decline in exports to the United States.
So the time is ripe for at least a partial agreement to settle some of the major trade issues between the world’s two leading economies. We welcome President Trump’s announcement that he is suspending scheduled tariff increases on $250 billion in Chinese goods that were to take place this week while the details of a “Phase 1” agreement are hammered out. His administration says the deal will include a $40 billion to $50 billion increase in Chinese purchases of American farm goods, including soybeans, and more aircraft purchases from Boeing, also a major South Carolina manufacturer at its plant in North Charleston.
But details of the agreement are still vague and need to be in writing. Financial markets are treating the announcement with caution until they can see what emerges. The Wall Street Journal correctly calls the pending deal a truce, not a real trade agreement, and has pointed out that many questions remain about the proposed agricultural purchases.
Treasury Secretary Steven Mnuchin said Monday, “There are still some issues that need to be worked out in wording” regarding the specifics of China’s promise to buy American farm goods, and there is still the prospect that the deal could fall apart, leaving both sides where they were.
The view from China is that the deal won’t happen unless President Trump also cancels tariff increases scheduled for December, something he has not committed to doing.
It is significant that the administration is calling this a Phase 1 agreement. This appears to be an acknowledgement that China is not yet ready to make concessions on the most important issues on the table, specifically its approach to intellectual property and its right as a so-called developing nation to erect barriers to foreign investment and goods. Mr. Trump was right to force the issue on these blatantly unfair practices, but his escalating tariffs have damaged the U.S. economy and continue to do so.
The fate of President Trump and his aggressive approach to China’s unjust trade practices is in the hands of American voters, who won’t render their verdict until November 2020. Unfortunately, that gives China ample reason to put off addressing the most difficult issues. Solving them to the satisfaction of the United States and China’s other major trading partners will require major changes in Chinese law, making them unlikely to reach resolution in the near term.
That leaves the main subject of Phase 1 as the lesser objective of reducing the huge imbalance of trade between the United States and China, something Chinese President Xi Jinping can easily achieve by ordering Chinese firms to increase their orders from American suppliers.
If that leads President Trump to commit to reciprocal tariff reductions with China, financial markets will breathe easier and the U.S. economy will get a boost. Some tough bargaining is still ahead even in Phase 1, but both sides have incentives to reach an agreement. The latest moves are a tentative but welcome step in that direction.