Trump’s Trade Truce is Fiction|Here’s Reality

From creating fake Time magazine covers featuring his likeness, to the oft repeated claim that he holds an MBA from the famed Wharton Business school (he doesn’t), President Trump has perfected the art of declaring success even in the face of objective failure. His “Phase One” trade deal with China carries on this storied tradition.

Before diving in, I am going to caveat my article with this: the “Phase One” trade deal with China is not signed and the details are unclear, therefore my analysis is based on only the limited information that has been made available. This fact, however, is hardly my fault. Trump declared victory, a “big win” for America in a trade deal with a foreign superpower without having worked out any of the details or committing anything to paper. In essence, the Phase One deal is merely and agreement to agree on something. I may ultimately be proven wrong, but if the “deal” is remotely anything like what has been announced, it is evident that Trump is trying to bolster his reelection bid with a fictitious victory. Let’s take a look at what was announced “The Fiction” alongside the “The Reality” behind it.

Point 1: The Fiction

China and USA agreed to some kind of currency agreement where China would agree to not use its currency as a trade weapon. In exchange, the USA would remove China from its much ballyhooed “Currency Manipulator” list.

Point One: The Reality

China has always denied that it uses its currency as a weapon for trade advantage, so reiterating this fact is meaningless. Additionally, most economists agree that China’s currency is overvalued, not undervalued as Trump falsely states. This makes Chinese products more expensive in USA and certainly is not a trade advantage for China. Moreover, the “currency manipulator” designation requires three conditions to be met before any official punitive action against China can take place. Without getting into the details, China only qualifies for one of these three conditions…meaning China never was going to face any punishment as a currency manipulator anyway and the designation (and the act of removing it) is totally meaningless.

China imported $24 Billion in agricultural goods from the US in 2017. In other words, even Trump’s best case scenario brings farmers back to where they were in 2017.

Point Two: The Fiction

China agreed to purchase $40–50 Billion dollars in agricultural products from the USA over two years.

Point Two: The Reality

China’s government never agreed to a specific dollar figure… and for good reason. The market prices of soybeans, corn, pork…etc determine the total dollar value of agricultural goods imported by China. If the prices are low….the imported value would also be low. The Chinese market would not buy above market value to appease Trump’s farmer base…why would they? Moreover, China is certainly is not going to buy extra product that would go to waste. Notably, however, even if China does agree to $40–50 billion in purchases over two years, bear in mind that China imported $24 Billion in agricultural goods from the US in 2017. In other words, even Trump’s best case scenario brings farmers back to where they were in 2017. Sorry farmers, your vote cost you big time.

Point Three: The Fiction

China agreed to open its finance industry to more foreign investment.

Point Three: The Reality

China certainly has agreed to open up its financial sector…in 2017. That’s right, most, if not all, of the big moves to open China’s financial markets predate the trade war itself. The timeline of certain lifting of restrictions may have been moved forward, but the trade war can hardly be credited with a victory here.

Point Four: The Fiction

China agreed to improve intellectual property protections for American and foreign companies operating in China.

Point Four: The Reality

There has been almost no details on this to make any good commentary. Most likely, this will be a reiteration of the most recent amendment to China’s patent law, which took effect earlier this year. Note that intellectual property protection has been steadily improving in China over the past 15 years.

The hard reality is, Trump’s habit to declare victory (as he did with his Obamacare replacement, with prior trade “truces”…etc) before having achieved anything is harmful for everyone. Free trade is a net positive for everyone and the prolonged disruption of the trade markets will only bring pain on all sides, especially at the hands of an inept and misguided White House.

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