Copyright Anchorage Daily News
The trade truce with China that President Donald Trump secured this week is good news for American farmers and businesses, but it will probably do little for consumers. Meeting in South Korea this week, Trump and Chinese President Xi Jinping agreed to retreat from a recent exchange of punitive measures that threatened a near shutdown of trade between the world’s two largest economies. But avoiding escalation is not the same as making progress. And measured against the commercial relationship that existed before Trump returned to the White House in January, the U.S. and China continue to drift apart. “We are in a better situation than we were yesterday. But we’re in a much worse situation than we were a year ago,” said Gregory Daco, chief economist at EY-Parthenon. Each side left the Busan, South Korea, meeting with something it wanted. Trump got China to delay by one year the Dec. 1 start of restrictions on exports of the rare-earth minerals that U.S. manufacturers require to produce an array of civilian and military goods. Xi also promised to crack down on illicit shipments of chemicals used to make the deadly drug fentanyl, which has killed tens of thousands of Americans, and to resume purchases of American soybeans that he had halted. But Xi wrestled concessions from Trump, too. The U.S. president dropped a threatened 100 percent tariff, cut in half the 20 percent charge he had imposed on Chinese goods earlier this year over the fentanyl issue, suspended port fees for Chinese container ships and delayed new limits on exports of advanced technology to China. As is his custom, Trump crowed over the outcome, saying the meeting deserved “a 12” on a scale of 1 to 10. Independent observers were less enthusiastic, saying that nine months of the president’s high-decibel trade maneuvering had achieved little. “There’s been a whole lot of running around and activity with nothing substantive to show for it,” said Scott Kennedy, a China specialist at the Center for Strategic and International Studies in Washington, D.C. “We’re probably worse off than had we done absolutely nothing.” Consumers who have grumbled about persistently high prices are especially unlikely to feel the trade truce. Halving the 20 percent fentanyl tariff means American importers will pay a 47 percent tax on imports from China, down from 57 percent before the talks. But one year ago, they were paying 25 percent. Plus, the cut in the fentanyl levy reduces the overall U.S. average tariff rate by just a single percentage point, from 18.5 percent to 17.5 percent, meaning retail prices are unlikely to budge, according to Daco. “In the grand scheme of things, it’s not a game changer for the average consumer. It’s not going to be visible,” he said. Getting China to resume purchases of American soybeans was another must-have for Trump. In recent months, Chinese orders for soybeans in Trump-friendly states such as Iowa and Missouri had dropped to zero, as Beijing sought to pressure the president. The White House began drawing up plans for a multibillion-dollar farm bailout while farm state lawmakers pleaded for help. In Busan, Xi committed to buying 12 million metric tons of soybeans through January and ordering an additional 25 million metric tons in each of the next three years, Treasury Secretary Scott Bessent told Fox Business on Thursday. The announcement was “a resounding victory for our grateful farmers,” Bessent wrote on X. The White House later described those figures as a floor not a ceiling. But the order was far from unprecedented. Last year, China bought almost 27 million metric tons from the United States. “The outcomes of the Trump-Xi meeting are all about de-escalation rather than taking the relationship in a new direction. In fact, in many ways we are back to where we were in our bilateral relationship when Trump took office,” Wendy Cutler, a former U.S. trade negotiator, wrote in an email. The White House sees the president’s trade record as one of unbroken success. Tariffs have been raised to historic highs, raising tens of billions of dollars in new tax revenue without triggering an inflationary surge. China’s agreement to grant one-year export licenses for key rare-earth minerals includes lifting an October 2022 restriction imposed during the Biden administration. Xi also agreed to drop investigations into several U.S. technology companies, including Qualcomm, Texas Instruments, Broadcom, Intel, Nvidia and Micron, according to the White House. “President Trump pledged to reorder global trade and finally put Americans and America First. Heading into his historic summit with President Xi that re-established mutual respect between the United States and China, President Trump secured multiple trade deals with other Asian nations that created unprecedented foreign market access for American workers, farmers, and industries – deals that proved the doomsday predictions about the president’s tariff and trade policies flat-out wrong,” said Kush Desai, a White House spokesman. Still, China has been a vexing negotiating partner for Trump. The president’s team began the second-term trade war convinced that the debt-ridden Chinese economy was near collapse and that Xi would have little choice but to bend when threatened with tariff pain. China’s economy, however, has proven more resilient than Trump officials anticipated. And Chinese negotiators demonstrated a willingness to hit back that seemed to surprise members of the administration, including Bessent, who visibly bristled at Beijing’s retaliation. “China is much more assertive than they were before. Part of that is they have more leverage than they had before but it’s really that they’re willing to use it. Whereas in the first administration China was constantly on the back foot, they came into this term wanting to show that the United States did not have escalation dominance over China,” said Sara Schuman of Beacon Global Strategies, who served as a U.S. trade negotiator during both the Trump and Biden administrations. Trump has fared better with other trading partners, including smaller nations. Administration officials have celebrated promises of new investment in the U.S., including $550 billion from Japan and $350 billion from South Korea. While analysts have raised doubts about whether all of the promised investment will materialize, U.S. negotiators have wrangled “amazing results” in gaining tariff-free access to foreign markets, added Cutler, who is now senior vice president with the Asia Society Policy Institute. Nations such as Malaysia and Thailand agreed in deals announced this week to eliminate virtually all of their tariffs on American-made products while accepting the imposition of steep U.S. levies on their goods. They also agreed to meet U.S. demands on so-called nontariff barriers, such as accepting American regulatory standards for auto safety. The latest China truce represents the fourth time this year that the two nations have sought a détente following earlier meetings in London, Geneva and Madrid. In May, Trump agreed to reduce a threatened tariff of 145 percent to just 30 percent after Chinese diplomats promised to ease deliveries of rare-earth materials. But each time the two sides drew closer, one or the other would take a step that would plunge the relationship into renewed animosity. While neither Beijing nor Washington desires an open confrontation, the limits of any rapprochement are becoming apparent. “Some form of economic decoupling has taken place between the two countries and will not reverse,” said Myron Brilliant, a senior counselor at DGA Group, a business advisory firm. “China’s desire for self-reliance and our desire to reorient supply chains continue to be flash points.” Indeed, two-way trade between the U.S. and China through July was down almost 20 percent from the same period last year, according to the Census Bureau. Five years ago, when Trump signed a limited “phase one” trade deal with China, he promised that a subsequent “phase two” negotiation would address the structural features of the Chinese economic model that make it such a fierce competitor in global markets. Those talks, always unlikely, were derailed by the pandemic. Today, there seems no chance that the two governments could cooperatively address Chinese overcapacity and the subsidies of state-owned businesses that put foreign rivals at a disadvantage. Optimists say the good feelings from the Trump-Xi meeting will provide an opening for the two governments to reach a broader accommodation. Pessimists anticipate an early return to the cycle of conciliation and challenge that has characterized Trump’s second term. “I expect both sides to test the boundaries of this agreement pretty quickly. There will be new rounds of threats and escalation,” said Kennedy of CSIS. “We’re going around in circles.”
