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Policy:

On January 15th Trump signed a Phase One trade agreement with China which would ease some of the tension between the two countries resulting largely from his earlier severe stance with regard to tariffs and regulations.  The initial program reflects the intention to open more China markets to US companies; increase farm and energy exports; and protect American technology and trade secrets.  China also agreed to bolster its protections for intellectual property.  The agreement is the culmination of two years of negotiation and the administration is hoping that it can avoid an escalation in the hostilities between the nations from his earlier position.

Per the agreement, China will buy an additional $200 billion of American goods and services by 2021, an increase of more than 50% from 2017 levels.  The $360 billion dollars of earlier US tariffs on Chinese good  remain though in December the administration passed reductions, from 15% to 7.5% of tariffs on consumer goods.  The 25% tariff imposed on components US factories import to assemble finished products remains at that level.  Trump asserts that these costs are born by China but analysts suggest the cost really accrues to American importers.

Analysis:

Trump claims a major victory with this Phase 1 calling it a “major sea change in international trade.”  Though it does portend a shift in trade policy its benefits are questionable and have been criticized by multiple analysts.  Instead of lowering tariffs, Phase 1 maintains record high tariffs and comes at the trade issue by forcing China to purchase a fixed amount of goods.  Some experts do not feel that China can achieve the level of purchase in the agreement and suggest that enforcement is tricky.

It also is suggested that the manner of the agreement increases  state control of the Chinese economy, a position counter to past administrations’ approaches to trade. Critics fear that the global trade dynamic will be compromised as a consequence of increased Chinese purchases from the US resulting in decreases elsewhere. It is projected that this will reduce outsourcing and lost jobs and loss of industries. China will gain economic stability and a boosted market  by being guaranteed a certain level of trade from the agreement and the hope that future tariff reductions will be included in Phase Two.

Critics question this assertion that Phase 2 will include tariff reductions and suggest that the timing of the signing of the Phase 1 agreement was calculated to offset the negative press regarding the impeachment issue.  The future of Phase 2 is in question.  It is probable that it will not be completed till after the 2020 presidential election as it is like to target the more complex problem of China’s subsidies to its companies.  In the meantime, Trump can tout the initial agreement as a boost to the American economy and as a reversal of reduced purchases of US goods and job losses wrought by his escalated trade policies in his first two years in office.

Sources:

https://www.cnbc.com/2020/01/17/china-to-uphold-phase-one-commitments-in-us-trade-deal-ts-lombard.html

https://www.cnn.com/2020/01/16/business/us-china-phase-1-trade-deal-details/index.html

https://www.npr.org/2020/01/15/796305300/trump-to-sign-phase-one-china-trade-deal-but-most-tariffs-remain-in-place

Resistance Resource:

http://americansforfreetrade.com/  A broad coalition of business, trade  unions, and workers against tariffs.

Photo by chuttersnap

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