Why the U.S-China Trade War Truce Could Be a ‘Nothing Burger’

October 14, 2019, 9:39 PM UTC

President Donald Trump heralded a breakthrough in U.S.-China trade talks, and markets rallied in relief over a de-escalation in tensions and economy-damaging tariffs between the world’s two biggest economies.

But closer inspection suggests there isn’t much substance, at least not yet, to the temporary truce Trump announced Friday at the White House after the U.S. and China wrapped up their 13th round of trade talks.

Yes, Trump agreed to suspend a tariff hike scheduled for Tuesday on $250 billion worth of Chinese imports. And the president said the Chinese agreed to buy $40 billion to $50 billion in U.S. farm products.

But nothing’s on paper and details are scarce about whether the end to the 15-month trade war is in sight. China’s state-run media hasn’t even mentioned the promise to buy all those soybeans and other agricultural products.

And the negotiators have delayed dealing with the toughest issues for future talks. Meanwhile, the U.S. is still scheduled to target another $160 billion in Chinese goods Dec. 15, a move that would extend Trump’s tariffs to virtually everything China ships to the United States.

U.S.-China trade truce, an “invisible deal”

Friday’s announcement was “a nothing-burger,” said Scott Kennedy, who analyzes China’s economy at the Center for Strategic and International Studies. “I call it the ‘Invisible Deal.’… The only thing that happened Friday was that the U.S. delayed the tariff increase.”

The Trump administration acknowledges work remains to be done on what it calls “phase one” of ongoing talks with China.

“We made substantial progress last week in the negotiations,” Treasury Secretary Steven Mnuchin said Monday on CNBC. “We have a fundamental agreement. It is subject to documentation, and there’s a lot of work to be done on that front.”

Mnuchin said he expected he and U.S. Trade Representative Robert Lighthizer will meet with China’s lead negotiator, Vice Premier Liu He, before a November Asia-Pacific summit in Chile. At that gathering, Trump and Chinese President Xi Jinping could officially sign off on a phase one agreement.

“It’s curious that Washington and Beijing have not yet put this ‘deal’ in writing,” said Wendy Cutler, a former U.S. trade negotiator now at the Asia Society Policy Institute. “That suggests that the details may not be worked out yet. If that’s the case, we should expect more bumps in the road in the lead up to a mid-November meeting between Trump and Xi.”

U.S. agriculture exports would greatly benefit under “phase one”

Trump emphasized the agricultural purchases he China has agreed to implement. If China ultimately buys $40 billion to $50 billion a year, as Mnuchin said, it would mark a significant win for American farmers, who have been hit hard by the president’s trade wars.

U.S. farm sales to China have never exceeded $26 billion a year, according to the U.S. Department of Agriculture.

China already is a major food importer as rising incomes boost its appetite for meat, vegetables, and higher-quality grains. The communist government has tried to promote self-sufficiency in rice, wheat, dairy, and some other commodities. But with a population of 1.4 billion, it cannot meet all its own needs.

A deal to delay mutually destructive tariffs

Jeff Moon, a former U.S. diplomat and trade official specializing in China who is now president of the China Moon Strategies consultancy, noted that Trump had reason to delay Tuesday’s planned tariff increase. Trade hostilities are weighing on the U.S. and world economies. Tariffs have pushed up costs for U.S. manufacturers and created uncertainty about when and how the trade wars will end.

“The bottom line is that both sides (on Friday) gave themselves permission to do what they wanted to do,” Moon said. “China really needs the food, and Trump doesn’t want to impose the (increase in) tariffs. That’s the bottom line.”

“It’s in the two countries’ interests to dial down the hostilities,” agreed David Dollar, senior fellow at the Brookings Institution and a former official at the World Bank and U.S. Treasury.

The two countries are deadlocked primarily over U.S. allegations that China deploys predatory tactics including outright theft—in a sharp-elbowed drive to become the global leader in robotics, self-driving cars and other advanced technology.

Beijing has been reluctant to make the kind of substantive policy reforms that would satisfy the Trump administration. Doing so would likely require scaling back China’s aspirations for technological supremacy, which it sees as crucial to its prosperity. “I don’t think China is willing to fundamentally change its system,” Dollar said. 

Resolving those issues is largely being pushed to future talks.

‘We’ve heard this before’

Over the past 15 months, the two countries have imposed tariffs on hundreds of billions of dollars’ worth of each other’s goods. Beijing has targeted farm products in a shot at Trump supporters in rural America.

It’s taken a toll.

Tim Garrett, 63, shares a 5,000-acre farm with his brother in eastern North Dakota, where they grow mostly soybeans and corn. He voted for Trump and said he supports a better trade deal with China. But he’s “not sure it’s coming about.”

“I’m not a huge political guy to start with, but China has been ripping us off for years,” Garrett said. “I believe something had to be done. I don’t think it should all be on the backs of agriculture.”

Bob Metz, a fifth-generation farmer from Peever, South Dakota, and a past president of the American Soybean Association, said he’s hopeful for a deal but until that time “the American farmer is getting hurt.”

“We’ve heard this before,” Metz said. “I don’t think anything has really changed with China, has it?”

The few times China has agreed to buy soybeans, they are getting them at up to $2 a bushel cheaper than when the trade war started, Metz said.

“So who’s the winner here?” he said. “It seems that China buys a few beans going into the talks, but is the goal to get rid of them or is the goal to sell them at a good price? The Chinese have done very well on this.”

U.S. Sen. Chuck Grassley, Republican of Iowa, a state hard hit by loss of soybean and pork sales to China, said he welcomes news that progress may have been made in some areas of the trade dispute with China but he said a final deal must address the full scope of structural issues and include strong enforcement mechanisms.

“After so much has been sacrificed, Americans will settle for nothing less than a full, enforceable and fair deal with China,” Grassley said.

More must-read stories from Fortune:

Trump’s tax bill has cost homeowners a trillion dollars
—Where 2020 Democratic candidates stand on LGBTQ issues
—What’s Rudy Giuliani’s role as Trump’s personal lawyer?
—3 questions for whistleblower advocate Joe Kostyack
—Marie Yovanovitch: Trump wanted her out as Ukraine ambassador
—For big gig economy companies, California is no longer a Golden State
—How whistleblowers have taken down titans of American business
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.

Read More

Biden AdministrationUkraine InvasionInflationEnergyCybersecurity