Donald Trump hopes to ride US-China trade deal to win re-election

“We had our battle,” Trump said during a session with US governors. “And we took in hundreds of billions of dollars in tariffs and other things. And you saw the – it was just announced the trade deficit was the lowest it’s been in years with China.”

And, he argued, the best way to keep those gains is to re-elect him.

“Right now – we’re so far ahead of [China]. They’re not catching us for a long time,” Trump said. “If the wrong person stands here or sits in the White House – that beautiful chair in the White House, in the Oval Office – sure, they’re going to – you know, they’re going to catch” the US.

Beginning Friday, China takes on increased commitments to crack down on the counterfeiting and piracy of American goods and to stop practices that force American companies to transfer valuable technology to participate in China’s market.

It also has promised to expand market access to US financial services firms, refrain from manipulating its currency for an unfair trade advantage – and in the agreement’s most eyebrow-raising provision – increase purchases of US manufactured goods, agricultural products, energy and services by US$200 billion over the next two years.

Last week, former US Trade Representative and World Bank President Robert Zoellick called that “managed trade” provision a “poison” that would be difficult to remove from US trade policy, once introduced.

Other critics point out it reinforces the Chinese Communist Party’s control over the country’s economy, rather than pushing it in a more market-oriented direction.

“It’s certainly the wrong message to send to the Chinese,” said Markus Beyrer, director general of BusinessEurope, a European business group.

The agreement also contains a dispute settlement provision that ultimately allows the United States to impose more tariffs if it believes China has not lived up to some terms of the pact and consultations fail to resolve the concern. Those would be in addition to the duties Trump still has in place on roughly US$370 billion of Chinese goods.

“All that happens on February 14 is a clock in the White House starts ticking,” said Derek Scissors, a China policy expert at the American Enterprise Institute.

“The countdown on the clock is determined entirely by whether the president is happy, not by the text of the agreement. That is why agriculture has specific deadlines – both sides understand that no Chinese farm purchases means the alarm goes off very quickly.”

In the face of criticism that the phase one deal does not address critical issues like industrial subsidies or the generous advantages that Beijing bestows on its state-owned enterprises, Trump has promised to negotiate additional deals.

“Obviously, our biggest focus is implementing phase one,” Treasury Secretary Steven Mnuchin told the Senate Finance Committee on Wednesday. “That, to a certain extent, has slowed down given,” as China grapples with its coronavirus outbreak, he said.

However, Mnuchin said he and US Trade Representative Robert Lighthizer have already scoped out what they want to get in a phase two agreement, which could be rolled out in as many as four separate parts: 2a, 2b, 2c and 2d.

“The president’s been very clear he wants us to execute on phase one. He wants us to make sure as we move to phase two we get what we need to get and doesn’t want to set arbitrary timelines,” Mnuchin said. “The president kept significant tariffs on to create an incentive for them to do phase two and those won’t be reduced until we do that.”

Many of the non-agricultural commitments in the agreement are “trivial” and it will take months to determine whether China has actually implemented them, even if Trump is inclined to ratchet up trade tensions in an election year, Scissors said.

Soybeans are harvested from a field on Hodgen Farm in Roachdale, Indiana, in November. Photo: Reuters

Soybeans are harvested from a field on Hodgen Farm in Roachdale, Indiana, in November. Photo: Reuters

Trump is clearly hoping for a steady stream of agricultural sales to China between now and November that will solidify his support among farmers.

US exports of agricultural and related products to China totalled US$16.3 billion in 2019, down sharply from just shy of US$24 billion in 2017, before Trump began imposing tariffs on hundreds of billions worth of Chinese goods to force Beijing to the negotiating table.

The new pact requires China to buy at least US$36.2 billion of US farm and related products in the first year and US$43.5 billion in the second year. In addition, China has also pledged to try to buy at least US$10 billion in additional US commodities over the two-year period.

Still, the US Agriculture Department on Tuesday, in its first monthly forecast since the agreement was signed on January 15, actually lowered its estimate of the average price farmers would receive for soybeans in the 2019-20 marketing year.

It kept its price forecasts unchanged for wheat, corn, barley and oats and cut them for cotton, rice, sorghum, cattle and hogs, compared to its January forecast, in a possible sign the China deal may not be a financial bonanza for farmers this year.

However, USDA issued a white paper last week explaining it was difficult to fully forecast the impact of the deal on commodity prices because the Office of US Trade Representative has kept secret China’s specific purchase commitments for individual commodities.

Going forward, USDA tracks exports of major agricultural commodities on a weekly basis, making it easy to see just how much China is buying relative to 2017. Big sales are reported on a daily basis, providing the basis for more headlines in farm country.

The Commerce Department also releases trade data on a two-month lag. So sales figures for roughly the first six months of the agreement will be known by October 6, when trade data for August is to be released.

Many analysts were already sceptical China could meet its purchase commitments without slashing imports from other suppliers. Since then, the negative impact of the coronavirus epidemic on China’s economy has raised further doubt about how much Beijing will buy from the United States in coming months.

But that crisis also provides Trump an excuse, if he wants one, to go easy on China if purchases lag expectations this year. He may be tempted to do that, rather than roil the economic waters by imposing more tariffs on Beijing, before voters go to the polls.

“I think there’s a heavy incentive on both sides for this agreement to work,” Wendy Cutler, a former US trade negotiator and vice-president of the Asia Society Policy Institute, said during a recent discussion hosted by the Washington International Trade Association.

“I don’t think either side wants to get back to that tariff tit-for-tat and I think China will do what it can do to implement this deal the best it can.”

In addition, it could be difficult for the Trump administration to admit to failings in the agreement, since that would be an acknowledgement that the deal they negotiated is no better than earlier agreements with the Chinese that they have aggressively criticised, Cutler said.

Most of China’s obligations in the intellectual property, forced technology, financial services and currency chapters take effect on Friday. But there are other deadlines, mostly in the agricultural chapter, for China to meet over the next year.

One early deadline requires the two countries to sign a plant health safety agreement with the next “seven working days” to allow the importation of US fresh potatoes into China.

Then over the next one to two months, the United States is required to take steps to pave the way for imports of fragrant pears, citrus, bonsai trees and Jujube fruit from China.

US Treasury Secretary Steven Mnuchin speaks to members of the media outside the White House on February 6. Photo: Bloomberg

US Treasury Secretary Steven Mnuchin speaks to members of the media outside the White House on February 6. Photo: Bloomberg

On the non-agricultural side, China is required to create “an Action Plan to strengthen intellectual property protection” by March 15 and to “review and approve” any pending licence applications for US service suppliers to provide credit rating services by May 14.

The agreement also calls on China to “significantly increase” enforcement actions against exports of counterfeit and pirated goods by May 14, and to increase training of customs personnel to stop trade in fake goods by Nov. 14.

Another commitment gives China a full year to develop a “simplified, predictable, science- and risked-base” system for approving food ingredients derived from genetically modified crops. China’s current lengthy process has been an irritant in agricultural trade.

 

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