Daily Recap — January 15

.

.

A Big First Step

.

.

With all the massive issues being taken up by the Trump administration, China may be the biggest of all. They are, after all, an aspiring superpower which has largely built itself on the backs of America. President Trump is the first sitting POTUS to truly tackle this issue head on, which is remarkable considering all the other problems that demand his attention.

Free trade purists clutched their pearls when Trump levied tariffs against the big red menace, warning that the economy would crumble if we didn’t allow China to have its way with us as per usual. Fast forward three years and those dire warnings have not come to fruition. Our economy is thriving while China is experiencing its worst downward trend in more than 60 years. While tariffs have brought pain to us in certain areas, most notably our farming sector, it’s been a far worse ordeal for our Chinese counterparts.

And that’s what brings us to today.

While China still holds out hope that Trump will be defeated this November, thereby bringing back the good old days of taking our spineless swamp to the cleaners, the pain has become acute to a point that temporary relief has become irresistible. As such, they have agreed to a preliminary trade deal of sorts, an important first step to resetting our trade relationship altogether. The Trump administration has dubbed it “Phase One,” or P1 for the purpose of this piece.

Let’s discuss what we know about this historic first step. Please note that the actual text of the deal hasn’t been made public by the White House. However, some details have been released to the press, which we’ll cover here.

.

Tariffs

.

As part of P1, the U.S. will halve its 15% tariff on about $120 billion in Chinese goods. We will also indefinitely suspend planned duties that would have covered consumer favorites such as smart phones and laptops. That leaves roughly $250 billion taxed at 25% and $120 billion that will be subject to a 7.5% duty once the agreement takes effect. Any further tariff reductions by the U.S. will be linked to the conclusion of future phases.

China, on the other hand, didn’t agree to specific tariff reductions in the deal. Instead, their obligation is to make the purchases and to have an exclusion process for its tariffs. The country has in recent months lowered some retaliatory tariffs including some on cars imported from the U.S.

.

Purchases

.

China has reportedly agreed to increase its total purchases of U.S. goods and services by at least $200 billion over the next two years. Beijing will purchase up to $50 billion of crops, in addition to $40 billion in services, $50 billion in energy and $75 billion to $80 billion worth of manufacturing. The specific breakdown of targets for individual commodities will be classified and not disclosed to the public.

While the agricultural numbers still aren’t what we need, they will go a decent ways toward putting farmers back to work as opposed to receiving government subsidies.

.

IP, Forced Tech Transfer

.

P1 centers around IP commitments and a breakthrough on forced technology transfer. Those issues are also at the heart of an investigation that led PDT to raise tariffs on China in the first place.

.

Enforcement

.

The agreement includes a dispute-resolution mechanism that will serve as the enforcement arm. That process is in line with how other U.S. trade agreements are enforced. Complaints of one party will be brought to a U.S.-China working group and if officials can’t resolve their dispute, a decision will be made at the ministerial level of what action to take. As just mentioned, that action will likely include tariffs.

.

Phase Two?

.

The president announced that negotiations for the next phase would start immediately, though his trade chief Robert Lighthizer said no date for future talks had been set. The first phase leaves contentious issues unresolved, including U.S. demands that China curb subsidies to state-owned firms. The administration also says future talks will also focus on digital trade, data localization, cross-border data flows and cyber intrusions.

.

.

Big Picture

.

Let’s be clear — this is only a small first step. The Chinese are hoping and praying that President Trump loses reelection so that they can return to business as usual. China will have to see that Trump will be around for a while before they commit to any longterm structural change.

What we have today is a bit of temporary relief — a little added business for our agricultural and manufacturing sectors — along with a loose framework for how Chinese misbehavior may be dealt with in the future.

While Phase One is far from ideal and definitely not a cure-all, we are certainly better off with it than without it. If we’re to see the kind of trade deal the president really wants to negotiate, however, we have to put him back in the White House. Until then, the Chinese will just be biding their time.

.

.

.

CLICK PAGE NUMBER AT BOTTOM TO READ NEXT STORY

Categories Uncategorized

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close