Name: Eastworld Spotlight: A trade deal for Trump, not a trade deal for U.S.-China trade war
Uploaded: 2020-10-08
Duration: 11 min 39 s
Description: Peterson Institute’s Chad Bown on why the phase one trade deal is a double-edged sword for U.S.-China relations.

[SOUND EFFECT] INTERVIEWER: Chad Bown is a senior fellow at the Peterson Institute of International Economics and a specialist on global trade joining us from Washington today. Chad, thanks for being with us. CHAD BOWN: Thanks for having me. INTERVIEWER: We're very interested in the evolution of a trade deal that was struck in January. Now seems almost kind of worlds away from the heat of the election and the campaign where we are right now. But I wonder if we could just talk a little bit about this January agreement between the US and China, and what was in it. And then I'd love to hear your view about how we're doing in terms of progress. CHAD BOWN: So I think to understand what's in the agreement and how we got there, you actually have to go back a bit further and talk about the previous two years, which was essentially a trade war. So beginning in early 2018, you had a Trump administration that started levying round after round of tariffs, ultimately covering more than $350 billion worth of US imports from China with tariffs. China retaliated, imposing tariffs on tens of billions of dollars. Not one for one, but lots and lots of tariffs on lots of American exports. And things really not doing well at all. Toward the end of 2019, recognizing that there was a US election happening in November of 2020, the Trump administration essentially said, let's get a deal, and let's see what we can get at this stage so that we'll have a relatively calm year heading into the election. And so they took what they could in an agreement with China that they announced the details of it in January of 2020. It went into effect in February of 2020. And it really had a couple of components to it. It did not, by far, resolve any of the issues of the trade war. The really big part of the deal, from President Trump's perspective, was the claim that China would buy $200 billion of additional on top of what they were already buying, $200 billion worth of additional American exports over the next two years. And so that is kind of what we've been tracking in the interim you know eight or nine, ten months since then. INTERVIEWER: And give us some perspective on that. Is an increase of $200 billion a big number or not? CHAD BOWN: It's a really, really big number. It's an additional $200 billion split over 2020 and 2021. But back in January, when we saw the terms of the deal, and what this was going to cover, analysts looked at this and said, this really, it's great to be aspirational. One of the concerns, historically, is that China has not been buying enough American exports. But these numbers were a bit too aspirational. $200 billion is a nice round number if you're a president out there on the campaign trail. But when you look into it, these were just sort of astronomical numbers that I don't think many folks thought that China was going to be able to reach. INTERVIEWER: So there were three broad categories of agriculture, manufacturing, and energy. And how did the targets in each of those sort out? CHAD BOWN: Let's start with the worst, energy. Energy is nowhere close. It's less than say 25% of the way, on a pro-rated basis, where we would have expected China to be in terms of the purchases. Now that's not unsurprising. If you remember back to the early part of 2020, when the pandemic hit, people stopped moving around, people stopped demanding oil, and oil prices basically went to zero. When the agreement was written, it was written in value terms. So even if Americans had extracted every barrel of oil that we had, and China had agreed to buy all of it, when you value that at a price of zero, it shows up in the trade bit as zero. So that hasn't done well so far in 2020, but you know that might have been expected, given what happened. Manufacturing is actually done reasonably OK, in terms of, compared to everybody else. So it may be 50% to 60% of year to date targets, but that's really being driven by some products that actually could disappear. So what's doing really, really well in manufacturing are things like high tech products, semiconductors, the equipment that foreign semiconductor manufacturers, including ones in China, need to use to make their own semiconductors. And the Trump administration has been rolling out a series of export controls for national security reasons, this is wrapped up with the concerns over Huawei and things like that, that have threatened to actually stop those exports of semiconductors and equipment. So the very same products that, so far, have been doing OK in the manufacturing part of the deal, they're threatened to be taken away. The last part, and the most politically salient part, is, of course, agriculture. These were the folks, the farmers in Iowa, in Nebraska, Wisconsin that were hurt by the retaliatory tariffs that China imposed during the course of the trade war. Soybeans. Soybeans dominates American agriculture, it's a 12, $13, $14 billion a year set of exports to China. That's what they really hoped that this deal would grow. And so far, the data there aren't that optimistic. It's less than 50% of the way on a pro-rated basis to where we would have expected it. So we would expect, to be fair, a lot of those crops to get pulled out of the ground in September and October and start going off to China in the weeks after that. So agriculture may end up doing OK, but that's not going to explain why things are doing so badly in energy, and manufacturing. INTERVIEWER: I know you're a specialist in trade and economics, and not necessarily politics, but I'm curious maybe your thoughts about the political implications now of where we are. If you're an official in the Trump administration, you can see it's almost impossible to achieve this goal by the end of the year. People like you are calling attention to that fact, so that everyone can know what the numbers are. How do you deal with that, then? How do you explain it? CHAD BOWN: Well, there's a couple of things. At the same time the overall US-China relationship has deteriorated so badly over the course of 2020, with the pandemic, with other non-trade-related events like Hong Kong, what's going on with the Uighurs, and other concerns that American human rights activists have in what's going on with China. That the fact that there is a trade agreement is the one positive thing, even though it's not living up to the numbers, that's holding together any sort of semblance of a US-China relationship at this stage. So I think, almost ironically, having a trade agreement is preventing things perhaps from getting worse. That being said, I think it's also contributed to the fact that things have gotten worse. The fact that there was a deal in place, beginning in January effectively, took the pressure off the Trump administration to continue to engage with China in a proactive way on trade. They really haven't had any additional discussions over the last eight or nine months. There hasn't really been a serious attempt at a phase two. And I think that has let some of the pressure off, and other folks within the Trump administration, which maybe have a very, very different perspective toward China, may be having a bigger influence on overall US policy right now. So it's kind of a mixed bag in terms of what this trade agreement means for the US-China relationship at the moment. INTERVIEWER: You're there in Washington, the political conversation has shifted a lot, as we noted since January. At the beginning of year, it did seem like China was a very salient political election issue. Does it does it seem less so now? CHAD BOWN: No, I think quite the opposite. China is everybody's punching bag in the political space here in the United States at the moment, when it comes to the campaign. And this is not just trade, there's some elements of it that are trade, but there's all of these other issues as well, including, obviously, the pandemic. INTERVIEWER: And both sides are determined to portray themselves as tough China hawks, and not with variation. CHAD BOWN: That's right. I think Candidate Biden has criticized the Trump administration and their approach toward China. I don't think there would be a radical shift, except perhaps in the way that they choose to engage on some of the issues with China. When you listen to some of their top people, and you read their campaign materials, it sounds as if they have many of the same concerns, but they would just do things differently. They would be more likely, for example, to work with allies, and not just go off on a unilateral trade war all by themselves, but work with Europe, with Japan, with countries that have common concerns with the United States on really a lot of these key trade issues. INTERVIEWER: That's an important point. I mean, what would be a signal that that shift was being made? What would be some of the first things that a new administration might start with to steer policy in that direction? CHAD BOWN: Well I think a new administration ultimately has a lot of amends to make with those allies. It's not as if the only thing the Trump administration has been doing on trade for the last 3 and 1/2 years was China. No, they've been imposing tariffs on Europe and Japan, whether it's steel and aluminum, threatening to do so on cars, starting fights wherever they could it's seemed. I think the initial signs would be watching out for what a Biden administration's approach toward those allies would be. Would they seek to get rid of those kinds of tariffs? Would they overtly make amends and negotiate resolutions to a lot of the fights that both the Trump administration may have started or other ones that they hadn't been able to resolve during their time in office? I think if you saw that, that would be signs that we'd do that first, and then we can work together on the areas of common concern that we have with how China is engaging in the trading system. INTERVIEWER: Lots of variables in the mix there but a fascinating shift in the way in which the world operates and the willingness of voters in democracies around the global economy to engage in trade collaboration Chad Bown, thank you so much for your time. We appreciate your insight. CHAD BOWN: Thanks for having me. 

Eastworld Spotlight: A trade deal for Trump, not a trade deal for U.S.-China trade war

International

And a double-edged sword for the U.S.-China relations.

Trump’s trade deal is only for him. Not the trade war

Peterson Institute’s Chad Bown on why the phase one trade deal is a double-edged sword for U.S.-China relations.