U.S.-China Trade Deal: Not Much At Stake, Except The Global Economy

U.S.-China Trade: This week’s U.S.-China trade talks won’t likely result in a final resolution of all trade disputes between the two countries. Even so, President Trump will come under pressure to accept a deal, any deal. Bad idea.




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We’ve noted before that we are free traders at IBD. It’s really the linch-pin of the free-market system. But whatever you might think about Trump’s tariffs on China — and, for the record, we didn’t like them — they have been effective in getting China to treat U.S. demands seriously.

But on U.S. requests for greater access to China’s markets for U.S. goods, Trump shouldn’t bend. Nor should he ease off the pedal when it comes to China respecting our intellectual property and copyrights, while also forcing U.S. companies to give up their secrets to Chinese “partners” as the price of doing business in the Middle Kingdom.

And, yes, China should level the playing field by lowering its massive subsidies to state-owned firms that often make it impossible for U.S. goods to compete with Chinese ones.

This is important, since most Americans know little of China’s plans. They include a massive revamping of their entire industrial economy by 2025, focused on 10 strategic sectors. Among them are industries the U.S. now dominates, including aerospace, semiconductors, artificial intelligence, alternative-energy vehicles and robots.

Leapfrogging The U.S.

That’s the goal, just as it was with the European Union 20 years ago: To leapfrog the U.S. economically.

Of course, no one should expect China’s Xi Jinping to give up his grandiose plans. We simply ask that, in pursuing them, he plays by the same rules as the rest of the developed world. China doesn’t do that now. As kids often say in the schoolyard, no cheating allowed.

Right now, Trump is in a good position to get what he wants. In case you haven’t been paying attention, China’s economy has entered a serious slowdown, with

Last week, Reuters ran an intriguing headline suggesting just how tough things are getting in China: “China unveils tax cuts for graduates, low-income workers in stimulus drive.” Meanwhile, in recent weeks, China’s central bank has pumped out billions of dollars in liquidity, pushing banks to make more loans to strapped, struggling enterprises.

Does that sound strange? China, which often boasts of its rapid growth, pushing desperate stimulus measures?

The New York Times explains: “With economic growth in China weakening to its slowest pace in nearly three decades, thousands of Chinese workers are holding small-scale protests and strikes to fight efforts by businesses to withhold compensation and cut hours. The authorities have responded with a sustained campaign to rein in the protests, and most recently detained several prominent activists in the southern city of Shenzhen late last month.”

China’s Economic Woes

China depends on the U.S. for trade. Without it, businesses will go belly up, and workers will get angrier and angrier. And President-for-life Xi’s tenure in office might be more tenuous than he thinks.

Trump slapped tariffs on some $250 billion in Chinese imports last year. That included a 25% levy on $50 billion in high-tech equipment, machines and semiconductors. The remaining $200 billion in goods, including building materials, chemicals, household goods and consumer electronics, faced a less-steep but still significant 10% tariff.

If a deal isn’t reached by March 2, Trump says he’ll impose tariffs on $267 billion in other Chinese goods. That’s basically everything China sells here. It will include shoes, cellphones, computers and clothes, consumer items now excluded entirely from tariffs.

There’s a good reason why the stock market has been acting skittish for the past half year or so: It worries about damage to our lucrative trade ties to China.  It’s also worried about Europe, which looks like it’s on the verge of a recession after the EU again downgraded its growth outlook. In short, the global economy is at stake in these talks.

Deal, No Deal?

As far as negotiating goes, Trump is in a good position to fix much of what’s wrong with U.S.-China trade. But it’s also a risky move, a gamble really, that the other guy will blink.

And what if Trump’s trade gambit fails? A new study by the Trade Partnership Worldwide finds that an all-out trade U.S.-China trade war with tariffs imposed by Trump and retaliation by China would cost the U.S. just over one percentage point in GDP growth, lower the average family of four’s income by $2,294 a year, and cost the economy more than two million jobs.

That’s an enormous economic cost, one that could potentially end Trump’s re-election hopes — and the Trump boom.

U.S.-China Trade Costs

But there’s a political cost, too. For Trump to give in and abandon what he wants from these U.S.-China trade talks, after nearly a year of trade-related turmoil, would be a big error. It would anger his base at home, confuse markets, and let Xi forget about making any reforms at all.

The stakes are very high. Good luck, Mr. President.

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