Time has come to terminate “Phase 1” China trade deal and move forward with tariffs

At the time that he signed the “Phase 1” deal with China in January, I said that Trump was making a huge mistake.

Let’s back up to Trump’s inauguration three years earlier. Trump was elected to “Make America Great Again” and a huge part of that program was to bring down America’s trade deficit and bring our manufacturing jobs back home again. In his auguration speech, Trump noted the abandoned, decaying factories scattered like tombstones across the American landscape and said “it all stops right here and right now!”

To that end, Trump got off to a slow start. Proud of his deal-making ability that he demonstrated in the business world, he took the same approach toward trade. He spent two years negotiating a replacement for the North American Free Trade Agreement. The USMCA (United States, Mexico, Canada Agreement) that has replaced it only went into effect this past July. Though analysts predict it will be a net win for the United States, boosting manufacturing, the trade deficit with Mexico has tripled in the meantime and we’ve yet to see any change in business dealings with that country.

At the same time, China launched a charm offensive with Trump and it worked. Trump fell for their promises to boost imports from the U.S. When he realized he’d been snookered, Trump finally did what he should have done in the first place, slapping tariffs on some Chinese goods. He later boosted those tariffs to 25% and levied them against half of all Chinese products. Then, to get China to make a trade agreement with the U.S., the “Phase 1” deal, he threatened to levy the same tariffs against the remainder of all Chinese products.

Predictably, China agreed to make significant progress toward buying more American goods and, to his credit (and unlike deals made by previous administrations), he included specific goals and deadlines. However, just as predictably, China has made no effort whatsoever to comply. They’d already gotten what they wanted. No more tariffs, and they counted on Trump being no different than any president who preceded him – there’d be no follow-through or enforcement. So far, they were right.

Making America Great Again came to a screeching halt – at least the trade reform portion of it which, of course, is the biggest and most important part. It was a huge mistake. I warned at the time that Trump was risking vital support by stalling his agenda.

Trade results for the month of September were released by the Commerce Department on November 4th. Nine months into the year, China has come up way short once again. Here’s the data: https://petemurphy.files.wordpress.com/2020/11/phase-1-china-trade-deal-2020-ytd.pdf. China’s purchase of manufactured goods is up slightly, but still less than the 2017 baseline and 30% short of the goal for 2020. Their purchases of energy products are 65% short of the goal. Their purchases of agricultural products is 52% below the goal, and their purchase of total goods is 38% short of the 2020 goal.

The deal’s goals were divided into four categories of goods. Nine months have passed. That’s 36 opportunities that China has had to demonstrate a good faith effort to meet the goals. Their score? Nine months into the deal, they are 0 for 36. They are only 8 for 36 in terms of meeting the 2017 baseline. No coach of any team would keep his/her job with that kind of record. It’s time to fire this deal.

Trusting China to meet their commitments was a big mistake that stalled Trump’s trade agenda and likely cost him the badly needed votes in the election. However, it’s not too late. Trump could put the trade agenda back on track toward making America great once again by declaring China’s performance a failure, terminating the deal and imposing the tariffs that should have gone into effect a year ago. Leave the deal in place and Biden will pretend that it doesn’t even exist. Terminate the deal and Biden will face a dilemma: cave in to China and drop the tariffs and prove to all American workers that he cares nothing about their plight, or leave the tariffs in place, scoring a big win for Trump’s legacy.

This is a last chance for Trump to demonstrate his determination to “Make America Great Again.”

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