On Thursday, a tentative trade deal was announced between the United States and China after a week of talks. A summary of the deal was released by Fortune:
On Thursday, it emerged that his ZTE U-turn was part of a broader accord in which the U.S. would withdraw its threat to slap tariffs on $150 billion of Chinese imports in exchange for promise that China would forego pending tariffs on U.S. sorghum exports and dramatically ramp up purchases of American products. It has been widely reported in the U.S. press that Beijing will commit to reducing China’s current $372 billion trade surplus with the United States by $200 billion over the next two years, mainly by increasing Chinese purchases of American soy beans, natural gas and commercial aircraft.
On the surface, this appears to be a solid deal. The United States is getting something and China is getting something. The United States is not getting what it had originally demanded, but as any fan of Trump knows, the President always sets very high demands going into a negotiation with the expectation of arriving at an equitable middle ground. It does save Chinese technology jobs and American farm jobs.
One problem is that this strengthens the root cause of the conflict. Trump accused China of being a currency manipulator on the campaign trail and has dithered on the position since taking office (CNN). A key component of the accusation is that the Chinese government is not allowing the free market to set actual values. By arranging a deal in which China pledges to reduce half of their trade surplus, they encourage China to increase direct governmental control of their businesses. While the short-term result may be good, it undermines decades of efforts to move China away from their communist structure.
A more direct issue is the response from our allies. The tentative deal, as described, removes China from the threat of incipient high tariffs. Most of our traditional allies are not so lucky. After President Macron made it clear last week that Trump’s withdrawal from the Iran deal would not trigger a trade war (TNB), it seems that a trade war may yet be triggered over the China deal.
From The Local:
Trump announced earlier this month that the EU would be shielded from his steel and aluminium tariffs along with Mexico and Canada, but only for another 30 days.
On Friday, the EU told the World Trade Organization that it was ready to unfurl retaliatory measures against US metal tariffs, which would include European tariffs on motorcycles and bourbon.
It has also undermined the relationship Trump had with the E.U., as they are publicly signalling a potential shift on their position on Iran, bringing them more in line with Russia than the U.S.. From CNBC:
France is looking to see if the European Union could compensate European companies that might be facing sanctions by the United States for doing business with Iran, said French finance minister Bruno Le Maire on Sunday.
Canada took a different tack. At the end of last month, they enacted new measure intended to curtail China’s ability to work around prospective tariffs by “steel dumping” in Canada.
Canada is now under the gun. They had taken Trump at his word that the tariffs were aimed at China, and worked to eliminate that as a potential concern. With China unable to use Canada as a tariff bypass, there would be no reason for Trump to include Canada in the tariffs. (Global News) Now China’s tariffs are apparently off the table, but Canada has been told they are only to get a final one-month exemption, lasting until the beginning of June. Worse, as it has become obvious that the true nature of the Canadian tariffs was to have a bargaining chip on NAFTA, the Canadians are concerned because the NAFTA talks have stalled, missing target deadlines. (Financial Times) Canada also has concrete evidence that the current U.S. Administration has no interest in acting in good faith, which may hinder future negotiations; not just with Canada, but with other attentive allies.