Risk of Backlash With China Deal: Financial Times

Agreement on a China-US trade deal may be near. Both nations want a deal, though few details have been released. US goods and service trade with China totaled more than $700 billion in 2017. “Yet even if a deal is more likely than not, there is reason to doubt whether it will be as comprehensive as Mr Trump is likely to depict — or even if it can deliver a lasting commercial peace between Washington and Beijing,” reports the Financial Times. “Among the biggest unanswered questions is the extent to which China has offered any meaningful concessions on some of its core economic policies that US negotiators have been seeking to reverse.” Donald Trump suggests the deal will reduce China’s use of industrial subsidies and include intellectual-property protections, but analysts express doubt as such policies require enforcement mechanisms. The US president undercut tough negotiators like Robert Lighthizer, US trade representative, by pettily rejecting traditional terminology for such negotiations. For Trump, the goal is to improve markets and his own standing. His supporters include many trade hawks who are sure to scrutinize the final deal. – YaleGlobal

Risk of Backlash With China Deal: Financial Times

As negotiators work on the China-US trade deal, an iron-clad agreement that lets US monitor Beijing’s pledges remains elusive
James Politi and Lucy Hornby
Wednesday, February 27, 2019

Read the article from the Financial Times about negotiations for a US-China trade deal.

Lucy Hornby is the Financial Times’ deputy bureau chief in Beijing, and James Politi  reports from Washington.

Copyright The Financial Times Limited 2019. All rights reserved.


The current US-China trade talks will end in failure, because the most important players are not sitting at the table. The American people have rejected Globalization in general and Free Trade with China in particular. The trade talks are being conducted by people who are not empowered to make a deal.

Trade-Related Unemployment in the US was fairly steady at 8 million jobs between 2006 and 2016. The political problem is that a disproportionate number of these unemployed people are in Ohio, Michigan, and other swing states. These people have rejected Globalization and have rejected elite opinion regarding International Trade.

The election of Donald Trump is one symptom of this rejection.

Meanwhile, the people selected to represent the US in these negotiations are themselves Globalists who have apparently spent their time discussing irrelevant issues while not even talking about the central problems. They are a bunch of clueless Wall Street types whose political ineptitude dooms the talks.

Defects in the American Negotiating Team

The head of the US negotiating team is Steve Mnuchin, who is a Wall Street person. His deputy is Robert Lighthizer, who is a (former) lobbyist.

The US team insists on discussing corporate issues like Intellectual Property, market access, and Chinese government subsidies. They don't seem to care about American jobs. It was a major mistake for Trump to not send his political people to run these negotiations. The current Trade Talk guys may cost Trump his job.

Defects in the Chinese Expectations

The current economic arrangements between China and the US date back to the Nixon-Mao deal of 1972. Part of the deal was that, after the Cold War ended, the US would help China rebuild its economy. Included was Chinese membership in the WTO.

During the Clinton administration, when the details of the WTO admission were being finalized, China was admitted as a “Backward” country, with special exemptions from the usual WTO rules. This should have been temporary. China today is not remotely an “Underdeveloped” country. It is the second largest economy in the world, and is rapidly heading towards First World status.

The special trade rules China is enjoying are part of the problem, and the public statements by certain Chinese government officials are unrealistic. One way or another, the trade deficits are going to end.

Deng Xiaoping would never have made this mistake. He saw what happened to the Japanese in 1985 after they had done enormous damage to the US steel and automobile industries. Deng would have seen clearly that China was not going to get special treatment for very long.

What the American People Want

They want the US Trade Deficit to go to zero. That means that they want the US-China trade deficit to go to zero. There are three ways for this to happen:
-China can buy another $200 Billion per year from the US. Pork would be a good choice.
-China can buy the same amount of American goods they buy now, and the US buys $200 Billion less.
-China buys nothing, and the US buys nothing.

The American people really do not care which of these happens, as long as the Trade Deficit goes away.
The official US government policy is that they want increased exports, but will settle for reduced imports. The Chinese government policy appears designed to produce a Zero-Zero trade balance. (That is to say, Chinese policy appears designed to cause a major Trade War.)

The Price of Failure

Donald Trump will be re-elected if he delivers a strong economy. So far, the amount of trade-related unemployment has dropped from 8 million people to 6 million people. If progress on trade-related unemployment stalls or reverses, Trump himself will become unemployed.

What I Expect

The Chinese negotiators have been given the task of not changing anything. Their basic method will be to stall and hope that Donald Trump goes away. This has worked in the past: Buy a few planes from Boeing and some corn or rice from the American farmers and call it a day.

The US negotiators are attempting to get private benefits for their Corporate clients and for their Wall Street friends. They are attempting to get a face-saving agreement which the Chinese will accept, and which will allow continued (or expanded) opportunities for them to make money.

I expect that there will be a lot of happy talk about jobs, but that the actual Trade Deal will either change nothing, or will make things worse. In particular, I do not expect a new Plaza Accord which dramatically increases the value of the RMB.