Trump's So-Called China 'Trade Deal' Is a Mere Stay of Execution
President Trump, the press, and GOP partisans are celebrating last weekend's trade war truce between the U.S. and China. But they should cork the champagne. None of the fundamental issues driving the trade war have been resolved. This point was made clear on Tuesday with Trump’s self-evident admission that he is a “Tariff Man” and the resulting stock market sell-of
In a deal perhaps most notable for its lack of specifics, Trump agreed to delay for two months a planned increase in U.S. tariffs on $200 billion worth of Chinese imports; China promised to purchase an undefined amount of U.S. goods; and both sides agreed to negotiate deeper trade and economic disagreements.
Avoiding tariff-induced price spikes in the New Year, when millions of consumers will be paying off their Christmas credit card bills, is a welcome development. For American consumers, small businesses, and farmers, however, this amounts to little more than a stay of execution, and the current Trump tariffs will continue to bite. Unless China submits to the U.S.'s laundry list of intractable trade grievances -- real and imagined -- tariffs will rise to 25 percent on March 1st, and Trump might follow through with his threat to enact new tariffs on another $267 billion worth of Chinese imports.
The U.S. and China will try to avoid this fate, and any new Chinese retaliation, by continuing talks for the next 90 days, but prospects for a substantive peace agreement are dim. Two sides already appear to disagree on the immediate deliverables, with each issuing conflicting readouts of the Trump-Xi dinner and subsequent Trump administration statements muddying both the process and outcomes. And it would be impossible for China to achieve in only 90 days the types of systemic reforms that certain U.S. officials demand. Add to this dynamic President Trump's appointment of Robert Lighthizer, a noted China "hawk" and architect of the current conflict, to lead the U.S. delegation, and a resumption of the trade war in 90 days appears likely.
If there's any chance of overcoming these obstacles, it will come from U.S. negotiators who understand basic economics, including White House Chief Economic Advisor Larry Kudlow and Treasury Secretary Steve Mnuchin, and the real harms that the President's tariffs are now generating.
Start with American consumers heading into the holiday season. They face a costlier Christmas because Trump's tariffs are driving up the prices of gifts, decorations, and the countless consumer goods that are made in China. In September, Walmart, the nation's largest retailer, said that as a result of the tariffs, "customers will face cost increases for essential items like car seats, cribs, backpacks, hats, pet products and bicycles" and may be forced to "forego purchases altogether."
Even nationalist Steve Bannon derisively admitted that Trump's tariffs will increase prices on "the junk you buy at Walmart." But one person's "junk" is another's valued possession. As the cost of tariffs have filtered through the economy, inflation has increased. Since April, about when Trump's first major tariffs took effect, the Consumer Price Index has risen nearly 25 percent faster than the previous seven month period.
Then there's the impact on American businesses large and small. Last week, General Motors announced 15,000 layoffs. It also revealed that Trump's steel and aluminum tariffs have cost the company $1 billion. That's a lot of jobs. Ford also recently announced that Trump’s tariffs had cost the company $1 billion, and that significant layoffs were forthcoming. And in the summer Harley-Davidson moved a production plant to Europe as a direct result of the tariffs. While Trump slammed GM and Harley-Davidson for their decisions, if he's looking for someone to blame, he should look in the mirror.
Tariffs are having an even bigger impact on small businesses, which don't have the profit margins or the pricing power of their big business competitors. I've aggregated over 200 stories of mostly small businesses that have lost customers, laid off employees, or even gone out of business entirely because of Trump's tariffs.
But perhaps the biggest casualty of Trump's tariffs are farmers, who have seen the Chinese market -- one of the biggest in the world -- shrink as a result of that country's inevitable retaliatory tariffs. With less product sold in China, oversupply has driven down U.S. crop prices. Soybean prices, the main export crop to China, are down about 20 percent since the spring. By one measure farm bankruptcies have doubled in the 12 month period that ended in June. The Agricultural Department expects farm income in 2018 to be 13 percent lower than last year.
Recognizing the tariff induced financial pain, the Trump administration enacted a $12 billion taxpayer-funded farm bailout. Bill Gordon, a Minnesota farmer and board member of the American Soybean Association, calls this a “Band-Aid on an arterial bleed.”
Trump is touting that China has promised to buy more from farmers, who he said will be the "big and fast beneficiary" of the trade talks, and other US exporters. But like most of Trump's trade war promises, this pronouncement is vague and indeterminate -- the opposite of the clear and protracted pain being felt by Trump's many trade war victims - and, even if true, would merely ease the pain that he alone inflicted.