U.S.-China Trade Deal Implications

Jan 18, 2020
Originally published on January 21, 2020 6:23 am
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MICHEL MARTIN, HOST:

We're going to spend some time now talking about the trade deal President Trump signed with China earlier this week. The Phase 1 deal is a partial cease-fire in the long trade war between the world's two largest economies. As part of the agreement, the U.S. will scale back some tariffs. And in exchange, China agrees to purchase an additional $200 billion of U.S. goods by 2021. But it remains to be seen if this deal will make up for the negative effects of the trade war, including the impact it has already had on farmers and manufacturers. We wanted to get more perspective on this, so we've called on Mary Lovely. She is a professor of economics at Syracuse University, where her research focuses on Chinese trade and development. Professor Lovely, welcome. Thank you so much for joining us.

MARY LOVELY: Thank you. Glad to be with you.

MARTIN: So could you just help us understand what has happened here? We know that China has agreed to buy more goods from the U.S. What does this deal change?

LOVELY: Just thinking in the short term and locally, the big change of course is that we've had a cease-fire. We're in a truce in the ongoing trade conflict between the U.S. and China. And that's good news. It's good news for our economy. It's good news for the global economy. They've also promised three other things of note. One is the purchases, which you just referred to. The second is improvements in the environment for American companies operating in China, particularly improvements in their treatment of our intellectual property and promising not to steal trade secrets. And the third is a mechanism for settling disputes and basically enforcing the agreement.

MARTIN: What about on the Chinese side, what do they get out of this?

LOVELY: You know, there's not a lot that they got on paper. There are lots of instances - by some counts over 50 instances in the agreement where it says China shall - and far fewer - less than 10 - where it says the U.S. shall. So this is really a very asymmetric agreement. People have asked, why did the Chinese sign such an asymmetric agreement? And I think the answer is it buys them respite from this trade conflict. And they'll buy some things that they need. And it allows them to signal to the rest of the world that they've made changes in intellectual property. That's been, you know - have the seal of approval from the United States of America.

MARTIN: Well, you know, you point out that the agreement itself is asymmetrical, and it appears to be to the benefit of the United States. But this period of the trade war has been very tough on American farmers and manufacturers and some consumers, it has to be said. Let's talk about farmers. I mean, we know, for example, that in 2019, farm bankruptcy filings are the highest they've been since 2011. We know that the administration has had to provide, you know billions, of dollars in aid for U.S. farmers. Do you agree - part of the story of these farm bankruptcies, it's not exclusively these - the trade war, but that there's been a big impact. Will this improve things for farmers - for U.S. farmers?

LOVELY: Oh, there's been no doubt that the trade war has impacted farmers. There's been a lot of damage to American manufacturers. The sad part about that is that it will continue. Two-thirds of goods we import from China will continue to have tariffs. Most of those are things that our manufacturers import to produce things. So it's parts and components. It's things like electric motors and power cords that we use to produce things either for our own market or for export. And they continue to suffer, so that drag on the economy continues.

MARTIN: What are some of the markers or sort of metrics that you will look at as you're trying to evaluate whether this is in fact a net benefit for consumers, farmers and manufacturers?

LOVELY: Well, again, I think it can only be a net benefit compared to what - you know, what would have been if we didn't get a truce. It's not going to be a net benefit compared to where we were. But I think there are two things to watch. First, will the deal hold? With these very aggressive targets and the way the dispute settlement works, it's very possible that that a dispute will arise. There's three different levels of negotiation, and then it goes on to the desk of the U.S. trade rep. And he or she can just say, look, it's not what we want. Tariffs go back on. So we could be back in a tariff war pretty quickly. My own personal view is that that won't happen before the election.

The second thing we're going to be looking at is the so-called Phase 2 talks, which are really supposed to tackle things that are incredibly hard to deal with, which is the use of subsidies to try to promote, you know, certain industries that they think are very important for society or for their economy, and controlling China's state-owned enterprises - again, something they've shown no willingness to do.

MARTIN: That was Mary Lovely. She is a professor of economics at Syracuse University and a senior research fellow at the Peterson Institute for International Economics. Professor Lovely, thanks so much for joining us.

LOVELY: Thanks for having me. Transcript provided by NPR, Copyright NPR.