Trump’s China Deal Flirts With the Curse of a Phase One and Done
President Donald Trump unveiled an interim deal with China on Friday that will avoid further escalation of a trade war that for almost two years has hung over the world’s largest economies and thus almost any country or company doing business with them.
But that agreement is already facing a question from political allies, foes, analysts and business groups alike that is likely to define the deal’s place in economic history: What if, after all those tariffs and all that drama, that’s it? What if it’s cursed to be Phase One and Done?
Trump and his aides have promised that the partial deal the president first announced on Oct. 11 will be followed by others. That’s because while the initial accord may see China increase its agricultural purchases to as much as $50 billion annually and make commitments on currency and intellectual property enforcement, it includes nothing on more potent structural issues such as the vast web of subsidies that has fueled the global rise of many Chinese companies.
While Trump has insisted that as many as two further phases will follow, many analysts are skeptical much more progress can be made going into an election year in the U.S. That could allow the Chinese to run out the clock.
“After the ups and downs over the past two years that led to a partial deal, I’m not sure both countries have the stomach to get back into these issues with any urgency,” said Wendy Cutler, a veteran trade negotiator now at the Asia Society Policy Institute. “A phase one trade deal is a welcome step. But it looks like this deal will fall way short of the long-term fundamental changes in China’s trade regime that the administration laid out a couple of years ago.”
That Trump appears ready to offer tariff relief in return has agitated China hawks in Washington who fear that after daring to take on Beijing in a way no prior president has with his tariffs, Trump is giving up leverage that might extract future concessions.
Marco Rubio, who has staked his claim as the most vocal Republican China hawk in the Senate, on Thursday urged the White House in a tweet to not surrender tariff leverage. Beyond China’s subsidies for domestic firms, he said, those included its historical practice of forcing foreign companies to hand over technological know-how as a cost of market entry and the blocks facing U.S. firms wanting to do business in some sectors in China.
All of those concerns remain priorities for a U.S. business community that has lobbied heavily against the Trump administration’s tariffs and questioned the efficacy of its tactics, even as it has endorsed its diagnosis of the problems that need to be addressed in China.
In reactions sent out by business groups after Bloomberg and then others reported that Trump had signed off on the deal during a meeting with aides Thursday, the common theme was that there had to be more to come.
“While this would be an important step, more work would remain to fully address longstanding concerns regarding China’s unfair trade policies and practices,” Jason Oxman, president and CEO of the Information Technology Industry Council, said in a statement.
Business groups are also eager to see Trump work multilaterally with allies to take on China, arguing that should both add pressure and deliver more substantive and longer-lasting changes.
The U.S. has been engaged with the European Union and Japan in drafting potential rules to tackle industrial subsidies. Those talks have stalled, however, in part because of a lack of interest from the Trump administration, making some skeptical the new rules will ever amount to anything.
Adding to the mistrust among historical allies like the EU is the U.S. administration’s move to hobble the World Trade Organization’s dispute resolution process by blocking the appointment of new judges to its appellate body. Around the world many other countries remain concerned by what they see as Trump’s efforts to dismantle a multilateral system the U.S. spent decades building.
Trump’s aides have characterized the moves at the WTO as part of an effort to modernize a moribund institution that has failed to address what they see as China’s systematic cheating of the system since it joined the WTO in 2001. And there are signs some American business leaders are willing to play along with that as well as Trump’s broader trade disruptions.
Jamie Dimon, the chief executive officer of JPMorgan Chase & Co. and outgoing chairman of the Business Roundtable, which represents U.S. CEOs, expressed doubts this week that a deal with China would go beyond an initial phase one agreement. But he told reporters in Washington that Trump was right to take on China.
Moreover, after the administration delivered an update of Nafta in the form of the U.S.-Mexico-Canada Agreement now headed for approval in Congress, notched a partial deal with Japan and freshened up an existing pact with South Korea, many in business were willing to give Trump the benefit of the doubt on trade, he said.
“If we accomplish those things it’s going to be important for the global economy for decades to come,” Dimon said.
Then again, he also warned it was unclear whether Trump would succeed in remaking America’s trade relationships with China and others for the better. “We don’t know yet because it’s not done yet,” Dimon said. “We’ll know in five years.”
©2019 Bloomberg L.P.