Donald Trump, the US president from 2017 to 2021, said he knows more about trade than most economists and foreign policy experts. “Trade wars are good and easy to win,” Trump said in 2018. He described himself as a “Tariff Man” and proved it by imposing new tariffs on hundreds of billions of dollars of US imports , to be paid by the American. companies that buy these goods.
Trump’s dubious logic was that making imports more expensive for Americans would hurt foreign sellers and give him leverage he could use to demand concessions. His biggest target, of course, was China. Trump added new tariffs on about $450 billion of US imports from China, while China, predictably, retaliated with similar sanctions on US imports. The escalation rocked financial markets in 2018 and 2019 and eventually led to the “phase one” trade deal between the two countries, signed on January 15, 2020. Under the deal, China would sharply increase its purchases of American goods as a precondition for Trump (or his successor) to remove the new tariffs and return to normal.
New trade data for 2021 shows China falling far short of fulfilling its commitments in the 2020 phase one deal, with US exporters in worse shape than they would have been had Trump not acted in matters of trade. Analysis of trade data by Chad Bown of the Peterson Institute for International Economics found that in the first two years covered by the trade deal – 2020 and 2021 – China bought just 57% of what it was committed to the trade agreement. China said it would buy at least $502 billion worth of American goods over those two years. Yet total purchases only totaled $289 billion.
Had there been no Trump trade war and no tariffs, US exports to China would have been $119 billion higher than actual levels from 2018 to 2021, if the US share of Chinese imports had simply remained constant. It’s a net loss of business for American companies. And that doesn’t include nearly $30 billion in US taxpayer funds that Trump distributed to farmers to compensate them for lost sales in China from 2018 to 2020.
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“Two years ago, President Donald Trump signed what he called a ‘historic trade deal’ with China,” Bown wrote on the Peterson Institute website. “Today, the only undisputed ‘historic’ aspect of this agreement is its failure. Was the trade war worth it for US exporters? The answer so far is no.
The COVID pandemic has obviously interfered with trade between the United States and China, as it has with trade between most nations. But that doesn’t seem to be the main reason why China’s purchases of US exports are so much lower than they agreed. Total U.S. exports of goods and services are nearly back to pre-pandemic levels, and exports of goods alone hit record highs in 2021. This reflects COVID-related distortions in the economy as a whole, with a reduction in services such as travel that drive demand for goods. US exporters are producing far more than before COVID, but not for the Chinese market.
An agreement focused on four areas
The 2020 Trump deal focused on four areas where China was supposed to increase US purchases and ultimately boost US employment in those areas: manufacturing, agriculture, energy, and Services. The services deficit, including travel and education, has clearly suffered from COVID. But that was less than 20% of the total purchase engagement.
Agriculture involved the smallest commitment from China, and these exports grew the most of all four groups. But that followed a swine fever crisis in China that decimated domestic pork production and led to increased imports from many places. While Chinese food purchases have increased following the 2020 deal, they are still far short of what China has pledged to buy from American farmers.
U.S. auto and aircraft exports to China are actually lower than they were in 2017, which is the base year for calculating China’s increased purchase commitments. That’s in part due to shortages of automotive semiconductors and Boeing’s 737 Max jetliner fiasco, which stalled sales for months. Yet critics tore up the 2020 deal when it was signed for prescriptive procurement targets allowing little to no flexibility for externalities, like a pandemic or a particular sector lockdown. These criticisms turned out to be correct.
The phase one deal had no enforcement mechanism, and Trump is obviously no longer president. So there may be no consequences if China grossly misses the deal’s goals. President Biden, for his part, has been wary about his trade policy with China. He left most of Trump’s tariffs on Chinese imports in place, while removing many other tariffs, such as those Trump imposed on European allies. Biden values human rights and green energy more than Trump, and it’s possible he could link the removal of tariffs to Chinese action in those areas. The one thing that is clear from Trump’s capricious trade experience, however, is that hurting yourself to hurt someone else is foolish.
Rick Newman is a columnist and author of four books, including “Rebounders: how winners go from failure to success.» Follow him on Twitter: @rickjnewman. You can also send confidential advice.
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