The Uneasy Truce of Trump’s Trade Deal with China

President Donald J. Trump and ​Chinese Vice Premier Liu sign a trade deal.
On Wednesday, Donald Trump and ​Liu He, the Chinese Vice-Premier, signed ​a U.S.-China trade deal that was billed as Phase I of a larger agreement, on which negotiation will continue.Photograph by Martin H. Simon / Redux

When the history is written of how China came to replace the United States as the world’s biggest economy, the interim trade deal that Donald Trump and Liu He, China’s Vice-Premier, signed at the White House on Wednesday will probably be relegated to the postscript. The economic growth that China has experienced since Deng Xiaoping came to power, in the late nineteen-seventies, is so remarkable that, once you adjust for the fact that prices of the same goods can vary widely from country to country, its economy is already about four trillion dollars larger than the U.S. economy, according to the World Bank. As time goes on, this gap will almost certainly get larger and larger.

The sheer heft of China’s economy explains why so many senior figures from corporate America were sitting in the East Room of the White House on Wednesday, as Trump and Liu signed a ninety-page trade deal that was billed as Phase I of a larger agreement, which is supposed to be negotiated in the coming months and years. For big corporations such as Boeing, Ford, and General Electric, the Chinese market is already a key one, and it has the potential to become an enormous one. But on what terms will these companies be admitted or allowed to expand?

For much of China’s epic period of economic transformation, the terms were dictated by the Chinese, and they tended to be pretty harsh. To set up a factory or office in the Middle Kingdom, foreign companies often had to partner with a local business or buy many of their components from local firms. Often, foreign companies had to teach the firms how to build these components and hand over proprietary technical information. As Keith Bradsher, the Shanghai-bureau chief of the Times, explains, this in turn enabled China to create its own industrial champions, many of which are state-owned or receive heavy subsidies from the government. Other parts of the Chinese economy remained effectively closed to non-Chinese firms. In some areas, such as entertainment, technology, and pharmaceuticals, foreign companies looked on helplessly as their products were pirated and their copyrights breached.

The Chinese growth model wasn’t new. In the early nineteenth century, for instance, many cotton mills in Massachusetts relied on designs that originated in Britain and had been transported across the Atlantic. Setting up low-cost manufacturing facilities, providing subsidies to local producers, and restricting access to potential foreign competitors were key elements of the Asian growth model, which countries like Japan, Taiwan, and South Korea pioneered in the postwar decades. China’s innovation was mainly to apply this model on a massive scale, regardless of foreign complaints.

When Trump came to power, he was determined to force changes in Chinese behavior and to reduce the U.S.-China trade deficit, which had grown to more than four hundred billion dollars. He slapped tariffs on more than three hundred billion dollars’ worth of Chinese exports, and, in August, 2019, he announced that he would expand the duties to include nearly all Chinese goods. With the trade dispute having already hit American farmers and industrial producers hard, there were fears that an all-out escalation could drag down the entire economy going into an election year, and perhaps cause a big fall in the stock market. In September, Trump blinked and postponed the new tariffs. In October, the Administration announced that the two sides had agreed to the outline of an interim deal, which was the one signed on Wednesday.

How significant is the deal? Trump hyped it up, of course. “This is the biggest deal anybody has ever seen,” he said. Robert Lighthizer, the hawkish U.S. Trade Representative, who led the American negotiating team, has been more measured. In December, he said that the deal “achieves meaningful, fully enforceable structural changes and begins rebalancing the U.S.-China trade relationship.” But even that assessment may be too optimistic. From the outset, China has been playing a waiting game, looking to outlast Trump. Now it looks suspiciously like Beijing has bought off the American President with some nice headlines about buying more American goods—“They thought it was a fifty-billion-dollar agricultural deal. Now it’s much more than two hundred billion, of which fifty is agricultural,” Trump crowed—while hedging, yet again, on giving up its mercantilist practices.

The key point is that the deal doesn’t end the trade war. It is merely a truce—a formalization of October’s commitment not to escalate things further. Until at least the end of Trump’s current term, most of the tariffs he has introduced will remain in effect. According to Chad Bown, of the Peterson Institute for International Economics, the average tariff on imports from China will be 19.3 per cent, up from about three per cent when Trump took office. Of course, this is something that Trump, the self-proclaimed Tariff Man, sees as a feature, rather than as a bug, in the deal. “I’m leaving them”—the tariffs—“on because otherwise we have no card to negotiate with,” he said.

The body of the agreement contains a lot of detailed language about China’s commitments to protect intellectual property, welcome foreign investment with fewer restrictions, and guarantee market access to foreign competitors. “China will open itself even wider,” Liu said in his remarks. But Beijing has made similar public commitments before, only to renege on them or slow down their implementation. Last year, the American side was insisting that the Chinese change some domestic laws in order to fulfil their obligations under the trade accord, but there is no mention of this in the interim agreement. “It really will come down to whether they”—the Chinese—“do what they say they are going to do,” William Reinsch, a former Under-Secretary of Commerce who is at the Center for Strategic and International Studies, told Bloomberg Television.

Trump Administration officials pointed to the enforcement mechanisms contained in the agreement, which include the establishment of a bilateral conflict-resolution body. Here, too, though, there may be less than meets the eye. “The dispute resolution section will have the same problem we’ve always faced,” James Green, a former U.S. trade negotiator, told the Wall Street Journal. “Companies are reluctant to become poster children for market access problems or discriminatory treatment.” Moreover, the agreement says nothing about two more key areas of conflict: government subsidies to Chinese firms and the operation of state-owned enterprises. These thorny issues, and others, are supposed to be dealt with in negotiations leading to Phase II of the deal. But the road ahead “is going to be long and difficult,” Reinsch noted.

A previous version of this article misspelled Chad Bown’s surname.