Trump's China deal leaves some trade experts 'underwhelmed'

President Donald Trump’s much-discussed phase one trade deal with China sets aside some of the economic uncertainty that has generated market volatility and depressed business investment, but trade experts say it falls far short of justifying a globally damaging trade war between the world’s two largest economies. What’s more, this resolution could mean higher costs for U.S. companies — and consumers.

While threatened tariffs on finished consumer goods such as clothes and electronics were avoided, the deal also reaffirmed the White House’s commitment to tariffs as an enforcement mechanism, leaving in place sanctions on $370 billion worth of Chinese imports for the foreseeable future.

This gives American buyers of those goods — primarily parts for items made in the U.S. — a greater degree of certainty in their input costs, albeit not in the direction they wanted. Trade analysts said this means companies facing higher input costs would probably begin passing those along to consumers in the form of higher prices, if they had not done so already.

“As tariffs become semi-permanent, Chinese producers and U.S. retailers will have even more reason to pass on price increases,” said Peter Petri, a professor of international finance at the Brandeis International Business School.

Overall, Petri called the deal signed Wednesday “a valuable agreement,” saying, “This is a fragile truce, but it’s an opportunity for confidence-building.”

But he also added several caveats. “It stopped the downward spiral of retaliations. But it is less than what its supporters claim,” he said. “Some of its provisions are vague and some are unachievable.”

Other experts were less impressed. “I’m just underwhelmed,” said Michael O. Moore, professor of economics and international affairs at George Washington University. “I think most people will give a sigh of relief that it’s not going to get worse, but the real issues remain.”

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Some said the White House gained nothing by blowing up a nearly completed agreement last spring. “Compared to the May 2019 deal, [this] is much thinner and does not entail a long list requirements for China to change its domestic laws and regulations,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.

The Trump administration made much of the agricultural purchase concessions in the deal. But while the consensus was that the U.S. agricultural sector will likely be a key beneficiary, experts were skeptical that China could — or would — meet the target of importing an additional $200 billion worth of American goods and services, including an additional $80 billion in agricultural purchases over two years, above pre-trade war levels.

“This requires a 40 percent increase this year and another 40 percent increase in 2021. That seems like a stretch goal,” said David Dollar, a senior fellow at the Brookings Institution. “It’s redistributing income from one group of firms to another one in a very complex way. It’s not obvious it’s a benefit for the U.S. economy,” he said.

With no specific dollar targets per agricultural commodity, farmers won’t know how many soybeans to plant or pigs to raise — making them potentially unable to fulfill much larger orders — and Petri pointed out that the deal’s verbiage gives China wiggle room.

“Chinese officials say that they will buy U.S. goods ‘based on market demand,’ but demand won’t grow that fast on its own,” he said. “To get such spectacular growth, China would have to create massive subsidies for U.S. goods — a huge government intervention that we should not be asking for,” Petri said.

Creating government-sanctioned demand at that scale could raise the price of those goods and distort the market. Some said China also risked running afoul of World Trade Organization regulations against countries playing favorites with their trading partners. “In short, what was a large and steadily growing market for U.S. commodity producers in China has now become and will remain highly politicized and hence risky for U.S. farmers,” Kirkegaard said.

Purchase guarantees weren’t deemed the only questionable part of the deal. Provisions meant to hold China accountable for infractions such as forced technology transfers were anemic, according to people who analyzed the text.

“On trade secrets, to be honest, the language that’s in the agreement is pretty loose and generic,” said Harry G. Broadman, managing director at Berkeley Research Group who chairs the firm’s emerging markets practice. “On the face of it, I don’t see — at least on that portion of the agreement — a lot that’s significantly different from previous types of agreements.”

Some of the practices and changes agreed to by Beijing were changes that were already in the works or had been previously agreed-upon. Petri said some of these provisions will benefit both American and Chinese interests, and are in keeping with Beijing’s longer-term economic goals. “China wants foreign investment and may well roll out new reforms in opening insurance and other financial sectors,” he said.

“China is trying to create more of an environment in which investment [and] innovation are self-reinforcing processes,” said Dean A. Pinkert, senior counsel at the law firm of Hughes Hubbard & Reed and a former commissioner of the U.S. International Trade Commission.

Pinkert suggested Beijing’s “concessions” in these areas were what Chinese policymakers wanted anyway. “I think in the long run, it’s as much in China’s interests to address those structural reform issues as much as it’s in the U.S.’s interests,” he said.

Many criticized the dispute resolution provisions for not including a mechanism for third-party arbitration and worried that enforcement ultimately would hinge on the threat to reinstate or ratchet up tariffs. While China certainly seeks to mitigate the impact its own economy has sustained as a result of two years’ worth of trade sanctions, the administration’s choice to lean into tariffs risks inflicting more damage on the American economy, as well.

“The people who are paying the tariffs are U.S. firms and U.S. consumers,” Broadman said. “It’s not clear to me what the actual economic impact will be as a dispute resolution measure to ‘threaten’ China with more tariffs.”

source: nbcnews.com